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American Economic Review: Vol. 96 No. 5 (December 2006)

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Inherited Control and Firm Performance

Article Citation

Pérez-González, Francisco. 2006. "Inherited Control and Firm Performance." American Economic Review, 96(5): 1559-1588.

DOI: 10.1257/aer.96.5.1559

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. (JEL G32, G34, L25, M13)

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Pérez-González, Francisco


American Economic Review


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