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The Family behind the Family Firm - Evidence from CEO Transitions

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Economists have long acknowledged that the structure of the family (number ofoffspring, marital status, etc.) plays a crucial role in important economic decisions (e.g.,labor supply, demand patterns, portfolio choice, educational attainment). In this paper weinvestigate the link between family structure and corporate decisions of family firms.Even though there is considerable anecdotal evidence on this link, there is no systematicstudy. This paper fills this gap. To this end, we assembled a unique dataset withaccounting information from 1995 to 2002 of the universe of privately held firms inDenmark. Our dataset includes the family trees of the owners as well as personalinformation about all family members. This information allows us to identify familyfirms 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 afamily member or an outsider as the next CEO. We show that the larger the pool ofpotential heirs, the higher the probability of family transition. Also we document that thisprobability is significantly lower when all offspring are female. Finally, family conflicts(proxied by divorce or multiple marriages) reduce the probability of family transition. Ina robustness check we show that there is a causal effect from family structure tocorporate decisions. We do this by instrumentimg the number of children with sibling sexcomposition and by restricting the sample to one in which founders had their last childyears before founding the firm.

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Morten Bennedsen, Kasper Nielsen

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