Discussion paper

DP6977 Inheritance Law and Investment in Family Firms

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.


Pagano, M, F Panunzi and A Ellul (2008), ‘DP6977 Inheritance Law and Investment in Family Firms‘, CEPR Discussion Paper No. 6977. CEPR Press, Paris & London. https://cepr.org/publications/dp6977