TY - JOUR AU - Bennedsen,Morten AU - Nielsen,Kasper M. AU - Pérez-González,Francisco AU - Wolfenzon,Daniel TI - Inside the Family Firm: The Role of Families in Succession Decisions and Performance JF - National Bureau of Economic Research Working Paper Series VL - No. 12356 PY - 2006 Y2 - July 2006 UR - http://www.nber.org/papers/w12356 L1 - http://www.nber.org/papers/w12356.pdf N1 - Author contact info: Morten Bennedsen Department of Economics Copenhagen Business School Parcelaenshaven 16A DK-2000 Frederiksberg C. DENMARK Tel: 011- 45-3815-2607 Fax: 011-45-3815-2576 E-Mail: mb.eco@cbs.dk Francisco Perez-Gonzalez Stanford University Graduate School of Business 518 Memorial Way Stanford, CA 94305-5015 Tel: 650-721-1283 Fax: 650-725-0468 E-Mail: francisco.perez@stanford.edu Daniel Wolfenzon Graduate School of Business Columbia University Uris Hall, Room 808 3022 Broadway New York, NY 10027 Tel: 212/998-0309 Fax: 212/995-4233 E-Mail: dw2382@columbia.edu M2 - featured in NBER digest on 2006-07-17 AB - 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 external chief executive officer (CEO). The paper uses variation in CEO succession decisions that result from the gender of a departing CEO%u2019s firstborn child. This is a plausible instrumental variable (IV), as male first-child firms are more likely to pass on control to a family CEO than are female first-child firms, but the gender of the first child is unlikely to affect firms%u2019 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 in fast-growing industries, industries with highly skilled labor force and relatively large firms. Overall, our empirical results demonstrate that professional, non-family CEOs provide extremely valuable services to the organizations they head. ER -