Inheritance Law and Investment in Family Firms
Andrew Ellul, Marco Pagano, Fausto Panunzi, 3 October 2008
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 laws affects investment only in family firms that experience a succession.
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URL: http://www.cepr.org/pubs/new-dps/dplist.asp?dpno=6977&action.x=0&action.y=0&action=ShowDP
Topics: Institutions and economics, Politics and economics
Tags: family firms, inheritance law, investment
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