FEEM working papers "Note di lavoro" series
2009 .006

Inheritance Law and Investment in Family Firms


Authors: Fausto Panunzi, Andrew Ellul, Marco Pagano
Series: Economy and Society
Editor: Fausto Panunzi
Type: Journal
Keywords: Succession,Family Firms,Inheritance Law,Growth,Investment
JEL n.: G32
JEL: Forthcoming in American Economic Review

Abstract

Entrepreneurs may be constrained by the law to bequeath a minimal stake to non-controlling heirs. The size of this stake can reduce investment in family firms, by reducing the future income they can pledge to external financiers. Using a purpose-built indicator of the permissiveness of inheritance law and data for 10,245 firms from 32 countries over the 1990-2006 interval, we find that stricter inheritance law is associated with lower investment in family firms, while it leaves investment unaffected in non-family firms. Moreover, as predicted by the model, inheritance law affects investment only in family firms that experience a succession.

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