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1、Comments welcome Inside the Family Firm: The Role of Families in Succession Decisions and Performance *Morten Bennedsen Copenhagen Business School and CEBR Kasper Nielsen University of Copenhagen and CEBR Francisco Prez-Gonzlez Columbia University Daniel Wolfenzon New York University and NBER Prelim
2、inary and incomplete: Please do not quote without permission June 2005 This paper uses a unique dataset from Denmark to investigate (1) the role of family characteristics in corporate decision making, and (2) the consequences of these decisions on firm performance. We focus on the decision to appoin
3、t a family or an external chief executive officer (CEO). We show that departing CEOs family characteristics have a strong predictive power in explaining this choice: family CEOs are more frequently selected the larger the size of the family, the higher the ratio of sons to children and when the depa
4、rting CEOs had only had one spouse. We then analyze the impact of family successions on performance. We overcome endogeneity and omitted variables problems of previous papers in the literature by using the gender of a departing CEOs first-born child as an instrumental variable (IV) for family succes
5、sions. This is a plausible IV as male first-child family firms are more likely to pass on control to a family CEO than female first child families, but the gender of the first child is unlikely to affect firms performance. We find that family successions have a dramatic negative causal impact on fir
6、m performance: profitability on assets falls by at least 6 percentage points around CEO transitions. These estimates are significantly larger than those obtained using ordinary least squares. Finally, our findings demonstrate that professional non-family CEOs provide extremely valuable services to t
7、he organizations they work for. JEL classification: G32, G34, M13 Keywords: family firms, successions, CEO turnover, governance *Morten Bennedsen (mb.ecocbs.dk), Kasper Nielsen (kncebr.dk), Francisco Prez-Gonzlez (fp2010columbia.edu), Daniel Wolfenzon (dwolfenzstern.nyu.edu). We thank Maria Guadalup
8、e, Jonah Rockoff and David Yermack for comments. We are grateful to CEBR and the Danish Social Science Research Foundation for financial support under the research project GOCOW. All errors are our own. 1Family firms have gained increasing attention in the finance and economics literatures as recent
9、 work has documented that founders and their families are often the dominant owners in publicly traded corporations. Given their prevalence, it is not surprising that a growing body of work has explored the impact of these founders and their families on firm performance, often with mixed results.1Ye
10、t to this date, we know little about the specific mechanisms through which family firms affect performance or about the precise roles played by the families behind these family firms.2As a result, it is hard to identify the distinctive features of family firms that distinguish them from other corpor
11、ations with concentrated ownership. The objective of this paper is to shed light into two questions. First, do family characteristics affect firm decisions? Family heterogeneity might be fundamental to understand the decisions of family firms. Second, if family characteristics indeed affect firms de
12、cision-making, what are the consequences of these decisions on firm performance? We evaluate these two questions in the context of firms succession decisions, where family firms face the often tough decision of hiring a family or an unrelated chief executive officer (CEO). We analyze CEO transitions
13、 because succession decisions are likely to play a key role in determining the survival of firms and because this decision is likely to driven in large part by family preferences (arguably family firms tend to prefer a family CEO). 1On the prevalence of family firms see La Porta et al, 1999; Morck,
14、et al., 2000; Claessens, et al., 2002; Faccio and Lang, 2002; Anderson and Reeb, 2003; Prez-Gonzlez, 2003; Villalonga and Amit, 2004. On the performance of family firms see Morck, et al., 1988a and 1988b; Yermack, 1996; McConaughy, et al., 1998; Morck, et al., 2000; Anderson and Reeb, 2003; Prez-Gon
15、zlez, 2003; Villalonga and Amit 2004. 2Some exceptions include Prez-Gonzlez (2003) who provides evidence on nepotism in CEO appointments in U.S. family firms and Bertrand et al (2004) who explore the consequences of sibling rivalry in Thai family firms. 2Using a unique dataset from Denmark we show t
16、hat family characteristics have a strong predictive power in explaining the decisions to hire a family or an unrelated CEO. In particular, we find that family CEOs are more frequently selected the larger the size of departing CEOs family, the higher the male to female ratio in their children and when the departing CEOs had only had one spouse. The magnitudes of the changes in the probability of observing a family succession attributable to these variables a
