Family Firms

Authors

  • Mike Burkart,

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    • Burkart is from the Stockholm School of Economics, Panunzi is from Università di Bologna, and Shleifer is from Harvard University. We are grateful to Mara Faccio, Julian Franks, Rob Gertner, Denis Gromb, Simon Johnson, Rafael La Porta, Enrico Perotti, Jeremy Stein, Daniel Wolfenzon, the editor, an anonymous referee, and seminar participants at Bologna, INSEAD, London Business School, the NBER Corporate Finance Conference (Chicago), Padua, Salerno, Stockholm School of Economics, Venice, and Zurich for helpful comments and discussions. Financial support from Università Bocconi (Ricerca di Base), from the Bank of Sweden Tercentenary Foundation, and from the Gildor Foundation is gratefully acknowledged. Robin Greenwood provided excellent research assistance. This paper is produced as part of a CEPR project on Understanding Financial Architecture: Legal Framework, Political Environment, and Economic Efficiency, funded by the European Commission under the Human Potential—Research Training Network program (Contract No. HPRN-CT-2000–00064).

  • Fausto Panunzi,

    Search for more papers by this author
    • Burkart is from the Stockholm School of Economics, Panunzi is from Università di Bologna, and Shleifer is from Harvard University. We are grateful to Mara Faccio, Julian Franks, Rob Gertner, Denis Gromb, Simon Johnson, Rafael La Porta, Enrico Perotti, Jeremy Stein, Daniel Wolfenzon, the editor, an anonymous referee, and seminar participants at Bologna, INSEAD, London Business School, the NBER Corporate Finance Conference (Chicago), Padua, Salerno, Stockholm School of Economics, Venice, and Zurich for helpful comments and discussions. Financial support from Università Bocconi (Ricerca di Base), from the Bank of Sweden Tercentenary Foundation, and from the Gildor Foundation is gratefully acknowledged. Robin Greenwood provided excellent research assistance. This paper is produced as part of a CEPR project on Understanding Financial Architecture: Legal Framework, Political Environment, and Economic Efficiency, funded by the European Commission under the Human Potential—Research Training Network program (Contract No. HPRN-CT-2000–00064).

  • Andrei Shleifer

    Search for more papers by this author
    • Burkart is from the Stockholm School of Economics, Panunzi is from Università di Bologna, and Shleifer is from Harvard University. We are grateful to Mara Faccio, Julian Franks, Rob Gertner, Denis Gromb, Simon Johnson, Rafael La Porta, Enrico Perotti, Jeremy Stein, Daniel Wolfenzon, the editor, an anonymous referee, and seminar participants at Bologna, INSEAD, London Business School, the NBER Corporate Finance Conference (Chicago), Padua, Salerno, Stockholm School of Economics, Venice, and Zurich for helpful comments and discussions. Financial support from Università Bocconi (Ricerca di Base), from the Bank of Sweden Tercentenary Foundation, and from the Gildor Foundation is gratefully acknowledged. Robin Greenwood provided excellent research assistance. This paper is produced as part of a CEPR project on Understanding Financial Architecture: Legal Framework, Political Environment, and Economic Efficiency, funded by the European Commission under the Human Potential—Research Training Network program (Contract No. HPRN-CT-2000–00064).


Abstract

We present a model of succession in a firm owned and managed by its founder. The founder decides between hiring a professional manager or leaving management to his heir, as well as on what fraction of the company 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. 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 cross-country evidence.

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