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The Family behind the Family Firm

Author

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  • Bennedsen, Morten

    (Department of Economics, Copenhagen Business School)

  • Nielsen, Kasper

    (Department of Economics, Copenhagen Business School)

Abstract

Economists have long acknowledged that the structure of the family (number of offspring, marital status, etc.) plays a crucial role in important economic decisions (e.g., labor supply, demand patterns, portfolio choice, educational attainment). In this paper we investigate the link between family structure and corporate decisions of family firms. Even though there is considerable anecdotal evidence on this link, there is no systematic study. This paper fills this gap. To this end, we assembled a unique dataset with accounting information from 1995 to 2002 of the universe of privately held firms in Denmark. Our dataset includes the family trees of the owners as well as personal information about all family members. This information allows us to identify family firms among privately held firms. We find that, using a 50% definition of control, 89% of privately held firms are family firms. We focus on the decision whether to choose a family member or an outsider as the next CEO. We show that the larger the pool of potential heirs, the higher the probability of family transition. Also we document that this probability is significantly lower when all offspring are female. Finally, family conflicts (proxied by divorce or multiple marriages) reduce the probability of family transition. In a robustness check we show that there is a causal effect from family structure to corporate decisions. We do this by instrumentimg the number of children with sibling sex composition and by restricting the sample to one in which founders had their last child years before founding the firm.

Suggested Citation

  • Bennedsen, Morten & Nielsen, Kasper, 2004. "The Family behind the Family Firm," Working Papers 03-2004, Copenhagen Business School, Department of Economics.
    • Handle: RePEc:hhs:cbsnow:2004_003
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    Citations

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    Cited by:

    1. Britta Boyd & Simon Fietze & Kristian Philipsen, 2015. "Entrepreneurial Intentions and Behaviour of Students Attending Danish Universities," Working Papers 9, University of Southern Denmark, Centre for Border Region Studies.
    2. Bach, Laurent & Serrano-Velarde, Nicolas, 2015. "CEO identity and labor contracts: Evidence from CEO transitions," Journal of Corporate Finance, Elsevier, vol. 33(C), pages 227-242.
    3. Bjuggren, Per-Olof & Palmberg, Johanna, 2008. "Swedish Listed Family Firms and Entrepreneurial Spirit," Working Paper Series in Economics and Institutions of Innovation 147, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    4. Stefano Caselli & Alberta Di Giuli, 2010. "Does the CFO matter in family firms? Evidence from Italy," The European Journal of Finance, Taylor & Francis Journals, vol. 16(5), pages 381-411.
    5. Boyd, Britta & Hollensen, Svend, 2012. "Strategic management of a family-owned airline: Analysing the absorptive capacity of Cimber Sterling Group A/S," Journal of Family Business Strategy, Elsevier, vol. 3(2), pages 70-78.
    6. Bennedsen, Morten & Kongsted, Hans Christian & Nielsen, Kasper Meisner, 2008. "The causal effect of board size in the performance of small and medium-sized firms," Journal of Banking & Finance, Elsevier, vol. 32(6), pages 1098-1109, June.
    7. Di Giuli, Alberta & Caselli, Stefano & Gatti, Stefano, 2011. "Are small family firms financially sophisticated?," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 2931-2944, November.

    More about this item

    Keywords

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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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