The Family Behind the Family Firm: Evidence from Successions in Danish Firms

Abstract

This paper uses a unique dataset from Denmark to examine the impact of owners’ family characteristics (size, gender composition, divorce, etc) on the decision to appoint internal (family) or external chief executive officers (CEOs). In contrast to common perceptions, we find that conditional on observing family CEO transitions, within cohort (spouse, siblings) successions are at least as prevalent as subsequent generation transitions. When assessing the impact of family characteristics on subsequent generation CEO appointments, we find that the probability of observing a family succession increases with the number of children, decreases with the ratio of female children, and decreases with divorce, particularly when it is accompanied with a new marriage and a new family. To show that these results are not spurious, we use instrumental variables. Overall, we find that family dynamics play a significant role in firm decision-making even when families are not the sole owner of these firms.