Working Paper: CEPR ID: DP13794
Authors: Daniela Scur; Renata Lemos
Abstract: This paper investigates the impact of family CEOs on firm organizational choices and the causes and consequences of these decisions. We focus on second-generation (dynastic) family firms, collect new data on CEO successions for over 900 firms in Latin America and Europe and merge it with unique data on organizational choices, specifically, structured management practices. We use variation in the gender composition of the outgoing CEOs’ children for identification. There is clear preference for male heirs: conditional on number of children, having at least one son is correlated with a 30pp higher likelihood of dynastic family succession. As the gender composition of the outgoing CEO’s children is unlikely to affect decisions on mid-level managerial practices, we use it as an instrumental variable for family succession. Dynastic CEO successions lead to almost one standard deviation lower adoption of structured management practices, with an implied productivity decrease of about 10%. We rationalize this finding with a new conceptual framework that accounts for the importance of implicit employment commitments to employees of dynastic firms in determining the adoption of monitoring technologies. We find empirical evidence that, controlling for lower levels of knowledge and skills of family CEOs, concerns for reputation and ''family name'' can play a role in constraining investment in structured management practices. Overall, our empirical results shed new light on dynastic firms' persistent performance deficit and apparent lag in the adoption of structured management practices.
Keywords: family firms; management practices; CEO succession; productivity
JEL Codes: D22; M11; M12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| CEO appointments (M12) | structured management practices (L23) |
| dynastic family succession (J12) | structured management practices (L23) |
| dynastic family succession (J12) | productivity (O49) |
| implicit employment commitments (J41) | structured management practices (L23) |
| concerns for reputation and family name (D14) | structured management practices (L23) |