The Power of Dynastic Commitment

Laurent Bach and Nicolas Serrano-Velarde

No 924, Working Papers from Oxford University Centre for Business Taxation

Abstract: We study how, at times of CEO transitions, the identity of the CEO successor shapes labor contracts within family firms. We propose an alternate view of how family management might underperform relative to external management in family firms. The idea developed in this paper is that, in contrast to external professionals, CEOs promoted from within the family not only inherit control of the firm but also inherit a set of implicit contracts that affects their ability to restructure the firm. Consistent with our dynastic commitment hypothesis, we find that family-promoted CEOs are associated with lower turnover of the workforce, lower wage renegotiation, and greater loyalty for the incumbent workforce.

Keywords: Succession; Family Firms; Implicit Contracts (search for similar items in EconPapers)
JEL-codes: D23 G32 J33 J44 M14 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-bec
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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