Inherited Control and Firm Performance

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1,146 citations0/0 files storedAmerican Economic Review

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Family Business Performance and Succession Corporate Finance and Governance Accounting and Organizational Management

Abstract

I use data from chief executive officer (CEO) successions to examine the impact of inherited control on firms' performance. I find that firms where incoming CEOs are related to the departing CEO, to a founder, or to a large shareholder by either blood or marriage underperform in terms of operating profitability and market-to-book ratios, relative to firms that promote unrelated CEOs. Consistent with wasteful nepotism, lower performance is prominent in firms that appoint family CEOs who did not attend “selective” undergraduate institutions. Overall, the evidence indicates that nepotism hurts performance by limiting the scope of labor market competition.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1993Common risk factors in the returns on stocks and bonds 1983Separation of Ownership and Control 2019American Economic Review 1999Corporate Ownership Around the World 1980Agency Problems and the Theory of the Firm 1986Large Shareholders and Corporate Control 1933The Modern Corporation and Private Property

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