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Discussion Paper Details

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Title: Inheritance Law and Investment in Family Firms

Author(s): Andrew Ellul, Marco Pagano and Fausto Panunzi

Publication Date: September 2008

Keyword(s): Family firms, Inheritance law and Investor protection

Programme Area(s): Financial Economics

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.

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Bibliographic Reference

Ellul, A, Pagano, M and Panunzi, F. 2008. 'Inheritance Law and Investment in Family Firms'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6977