American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Inherited Control and Firm Performance
American Economic Review
vol. 96,
no. 5, December 2006
(pp. 1559–1588)
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)Citation
Pérez-González, Francisco. 2006. "Inherited Control and Firm Performance." American Economic Review 96 (5): 1559–1588. DOI: 10.1257/aer.96.5.1559Additional Materials
JEL Classification
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G34 Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
- L25 Firm Performance: Size, Diversification, and Scope
- M13 New Firms; Startups