Xu Niu

Firms managed by the scions of founders continue to be prevalent in the United States despite the increase in shareholder activism over the last few decades, calling into question the argument that such organizational structures reduce firm value. Founder‐family successions are rare in high‐growth industries where the benefits of selecting from a larger pool of managers is significant. Rather, they tend to happen in low‐growth industries, in manufacturing/retail firms. Once we account for the differences in firm characteristics, we do not find that founder‐family successions reduce firm value. We explore a mechanism that compensates for the costs of choosing from a smaller pool of managers and document evidence consistent with family firms benefiting from improved labor relations.