CEOs in family firms: Does junior know what he's doing?

Roberto Pinheiro and Chris Yung

Journal of Corporate Finance, 2015, vol. 33, issue C, 345-361

Abstract: We model the evolution of CEO quality in family firms. When heirs work toward a common goal alongside an older generation, Bayesian updating attributes success mostly to the older (proven) agent. Thus, heirs learn little about their own skill. This effect is strongest after the founder, implying that family firms tend to either die immediately or be relatively long-lived. More generally, we obtain an even/odd fluctuation in generational quality. Because uncertainty breeds caution, our analysis points to a conservative managerial style in family firms and emphasizes the importance of external screening mechanisms, especially for heirs following a very successful generation.

Keywords: Family firms; Succession; Managerial skills; Market selection (search for similar items in EconPapers)
JEL-codes: D21 D23 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:33:y:2015:i:c:p:345-361

DOI: 10.1016/j.jcorpfin.2015.01.010

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