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  3. American Economic Review
  4. December 2006
  5. Inherited Control and Firm Performance

Inherited Control and Firm Performance

  • Francisco Pérez-González
American Economic Review
vol. 96, no. 5, December 2006
(pp. 1559-1588)
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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.96.5.1559

Additional 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