FAMILY BUSINESS SUCCESSION: APPROPRIATION RISK AND CHOICE OF SUCCESSOR

Succession planning is crucial to the success and continuity of a business (Miller, 1993; Oca- sio, 1999; Pitcher, Cherim, & Kisfalvi, 2000), par- ticularly for family businesses, where few sur- vive more than one generation (Birley, 1986; Kets de Vries, 1993). Nepotism is generally perceived to be the reason why families hand over their businesses to their offspring or close family members (Barach, Gantisky, Carlson, & Doochin, 1988; Beckhard & Dyer, 1983); however, “nepotism may prove a serious problem for the family firm” (Pollak, 1985: 215) and may not be in the interests of the firm’s shareholders as a group (Barach et al., 1988).

Here we examine (1) the effects of specific human capital in the form of idiosyncratic knowledge and (2) the ability of prospective suc- cessors on families’ successor choice for their businesses. We aim to provide an economic ra- tionale based on transaction cost economics (TCE) to the succession phenomenon observed in family businesses.  Read More…