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Inheritance Law and Investment in Family Firms

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  • Pagano, Marco
  • Panunzi, Fausto
  • Ellul, Andrew

Abstract

Entrepreneurs may be constrained by the law to bequeath a minimal stake to non-controlling 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 10,245 firms from 32 countries over the 1990-2006 interval, we find that stricter inheritance law is associated with lower investment in family firms, while it leaves investment unaffected in non-family firms. Moreover, as predicted by the model, inheritance laws affects investment only in family firms that experience a succession.

Suggested Citation

  • Pagano, Marco & Panunzi, Fausto & Ellul, Andrew, 2008. "Inheritance Law and Investment in Family Firms," CEPR Discussion Papers 6977, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:6977
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    More about this item

    Keywords

    Family firms; Inheritance law; Investor protection;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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