This article contributes to the growing empirical literature on family firms by studying the impact of the founder-chief executive officer (CEO) succession in a sample of Italian firms. We contrast firms that continue to be managed within the family by the heirs to the founders with firms in which the management is passed on to outsiders. Family successions, that is, successions by the founder's heirs, are further analyzed by assessing the impact of the sectoral intensity of competition on the post-succession performance. This analysis also addresses the endogeneity in the timing of the CEO succession by controlling for a pure mean-reversion effect in the firm's performance. We find that the maintenance of management within the family has a negative impact on the firm's performance, and this effect is largely borne by the good performers, especially in the more competitive sectors. These results indicate that there is no inherent superiority of the family-firm structure and emphasize the importance of conducting an analysis of governance in a variety of institutional settings.
Published in 2008 in: Journal of Corporate Finance, v. 14, 1, pp. 17-31
