American Economic Review: Vol. 100 No. 5 (December 2010)


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Inheritance Law and Investment in Family Firms

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Ellul, Andrew, Marco Pagano, and Fausto Panunzi. 2010. "Inheritance Law and Investment in Family Firms." American Economic Review, 100(5): 2414-50.

DOI: 10.1257/aer.100.5.2414


Entrepreneurs may be legally bound to bequeath a minimal stake to noncontrolling 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 10,004 firms from 38 countries in 1990-2006, we find that stricter inheritance law is associated with lower investment in family firms but does not affect investment in nonfamily firms. Moreover, as the model predicts, inheritance law affects investment only in family firms that experience a succession. (JEL G31, G32, K22, L26, O17).

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Ellul, Andrew (IN U)
Pagano, Marco (U Naples "Federico II" and CSEF)
Panunzi, Fausto (Bocconi U and FEEM)

JEL Classifications

G31: Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
G32: Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
K22: Corporation and Securities Law
L26: Entrepreneurship
O17: Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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