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The role of debt in the family business succession problem

Maximiliano González (), Bernardo Misle and Jorge Prado
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Maximiliano González: School of Management, Universidad de los Andes
Bernardo Misle: IESA
Jorge Prado: IESA

No 22, Galeras. Working Papers Series from Universidad de Los Andes. Facultad de Administración. School of Management

Abstract: This paper studies the typical succession problem in family businesses with respect to the hiring or not a professional manager once the founder decides to retire. Burkart et al. (2003) show how a legal framework is an important determinant in solving this problem. We extend their model in order to consider the possibility that the founder uses bank debt to alleviate monitoring cost. We Önd that bank debt plays also an important role in family businesses succession problem and gives an alternative explanation of why family Örms in emerging market countries are mostly Önanced through the banking system and do not áoat their own shares in the capital markets.

Keywords: Family business; succession; capital structure; emerging markets (search for similar items in EconPapers)
JEL-codes: G32 M52 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2008-10-04
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