American Economic Review: Vol. 96 No. 5 (December 2006)
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Inherited Control and Firm Performance
Pérez-González, Francisco. 2006. "Inherited Control and Firm Performance." American Economic Review, 96(5): 1559-1588.
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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