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