This paper uses a unique dataset from Denmark to investigate the impact of family characteristics in corporate decision making, and the consequences of these decisions on firm performance. We focus on the decision to appoint either a family or an external chief executive officer (CEO). The paper uses variation in CEO succession decisions that result from the gender of a departing CEO’s first-born child. This is a plausible instrumental variable (IV) as male firstchild firms are more likely to pass on control to a family CEO relative to female first-child firms, but the gender of a first child is unlikely to affect firms ’ outcomes. We find that family successions have a large negative causal impact on firm performance: operating profitability on assets falls by at least four percentage points around CEO transitions. Our IV estimates are significantly larger than those obtained using ordinary least squares. Furthermore, we show that family-CEO underperformance is particularly large for firms in high-growth industries and for relatively large firms. Overall, the empirical results demonstrate that professional non-family CEOs provide extremely valuable services to the organizations they head.

We investigate the relation between ownership structure and firm performance in Continental Europe, using data from 675 publicly traded corporations in 11 countries. We find that firm valuation and operating performance decrease when the control rights of the largest shareholder exceed its cash-flow ownership. This is consistent with the hypothesis that control power unrelated to cash-flows ownership allows extraction of private benefits and/or entrenchment of less efficient management. We also find that operating performance increases with the largest shareholder’s cashflow ownership, that is consistent with the hypothesis that more cash-flows rights lead to more wealth production and less expropriation of minority shareholders. We don’t find, however, a clear relation between stock market valuation and cash-flows ownership. Families are the type of owners that most recur to control-enhancing devices associated with lower performance. However, even after taking into account that family-controlled corporations exhibit larger separation between control and cash-flow rights, our results

This White Paper, commissioned by the Coleman Foundation and U.S. Association of Small Business and Entrepreneurship, has three specific objectives. The first is to provide a review of the most important contributions to the field with respect to progress in the development of a theory of the family firm. The second is to discuss the most important directions for future research with respect to the same end. The third is to make a set of recommendations on an appropriate pedagogy for family business management in light of these development and directions.

This paper investigates how family ownership shapes the relations between ownership, behaviour and performance of firms. The study draws from institutional and transaction costs theories of ownership and governance that explain governance choices as the result of a process of transaction costs minimization within a framework of competition and natural selection; Demsetz (1983), Williamson (1985). Family ownership is viewed as a governance form subject to the same efficiency demands that other forms of ownership, Pollak (1985). The empirical predictions of the analysis are tested with data from a sample of Spanish family and non family firms listed in the Stock Market that survive as listed during all the period 1990 to 2004. The results confirm one of the main predictions of transaction costs theory, namely that in the equilibrium of assignment of transactions to governance forms, no differences in economic profits are expected among alternative forms of ownership. The evidence from our sample of Spanish firms is: Family firms listed in the Spanish Stock Market in 1990 are of similar age but of smaller size than the rest of the firms that remain listed after fifteen years. Surviving family firms have higher productive efficiency, measured in terms of total factor productivity, than non family surviving firms, but no evidence is found of differences in profitability between the two groups of firms. Family firms choose more labour intensive production technologies as a way to reduce the amount of invested assets and remain competitive, but the financial structure of both forms of ownership is similar. This evidence, in sharp contrast with other found in samples of listed US firms where family firms outperform in profits to non family ones, is interpreted in the context of institutional differences between the two countries, in particular higher entrepreneurial talent and better protection of minority shareholders in US than in Spain. 2

This paper was previously titled “The Decision to Go Public: Evidence from Mandatory

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The f inancial system makes an important contribution to the welfare of all Canadians. The ability of households and f irms to conf idently hold and transfer f inancial assets is one of the fundamental building blocks of the Canadian economy. As part of its commitment to promoting the economic and f inancial welfare of Canada, the Bank of Canada actively fosters a safe and eff icient f inancial system. The Bank’s contribution complements the efforts of other federal and provincial agencies, each of which brings unique expertise to this challenging area in the context of its own institutional responsibilities. The f inancial system is large and increasingly complex. It includes f inancial institutions (e.g., banks, insurance companies, and securities dealers); f inancial markets in which f inancial assets are priced and traded; and the clearing and settlement systems that underpin the flow of assets between f irms and individuals. Past episodes around the world have shown that serious disruptions to one or more of these three components (whether they originate from domestic or international sources) can create substantial problems for the entire f inancial system and, ultimately, for the economy as a whole. As well, ineff iciencies in the f inancial system may lead to signif icant economic costs over time and contribute to

Abstract. Estimating the value of top managerial talent is a central topic of research that has attracted widespread attention from academics and practitioners. Yet, testing for the importance of chief executive officers (CEOs) on firm outcomes is challenging. In this paper we test for the impact of CEOs on performance by assessing the effect of (1) CEO deaths and (2) the death of CEOs ’ immediate family members (spouse, parents, children, etc). Using a unique dataset from Denmark, we find that CEO (but not board members’) own and family deaths are strongly correlated with declines in firm operating profitability, investment and sales growth. Our CEO shock-outcome analysis allows us to identify the personal shocks that are the most (least) meaningful for CEOs: the death of children and spouses (mothers-in-law). We show that individual CEO, firm and industry characteristics seem to affect the impact of these shocks. In particular, CEO effects are larger (lower) for longer-tenured (older) CEOs and for those managers with large investment fixed effects. CEO shocks are relevant across the size distribution of firms but are concentrated on those firms that invested heavily in the past. Lastly, we find that CEO shocks tend to be larger in rapid growth-, high investment- and R&D-intensive industries. Overall,

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