Family firms

Shleifer, Andrei, Panunzi, Fausto and Burkart, Mike ORCID: 0000-0002-0954-4499 (2002) Family firms. Financial Markets Group Discussion Papers (406). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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Abstract

We present a model of succession in a firm controlled and managed by its founder. The founder decides between hiring a professional manager or leaving management to his heir, as well as on how much, if any, of the shares to float on the stock exchange. We assume that a professional is a better manager than the heir, and describe how the founder’s decision is shaped by the legal environment. Specifically, we show that, in legal regimes that successfully limit the expropriation of minority shareholders, the widely held professionally managed corporation emerges as the equilibrium outcome. In legal regimes with intermediate protection, management is delegated to a professional, but the family stays on as large shareholders to monitor the manager. In legal regimes with the weakest protection, the founder designates his heir to manage and ownership remains inside the family. This theory of separation of ownership from management includes the Anglo-Saxon and the Continental European patterns of corporate governance as special cases, and generates additional empirical predictions consistent with crosscountry evidence.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://fmg.ac.uk
Additional Information:	© 2002 The Authors
Divisions:	Financial Markets Group
Subjects:	H Social Sciences > HF Commerce H Social Sciences > HG Finance H Social Sciences > HB Economic Theory
JEL classification:	M - Business Administration and Business Economics; Marketing; Accounting > M1 - Business Administration > M10 - General
Date Deposited:	20 Aug 2009 08:38
Last Modified:	13 Sep 2024 19:47
URI:	http://eprints.lse.ac.uk/id/eprint/24926

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