Title

A sequential choice model of family business succession

Department

Economics, Finance, & Quantitative Analysis

Document Type

Article

Publication Date

6-1-2015

Abstract

Management succession is a critical process, especially in family-owned businesses. Current models of management succession focus on elements such as personal development of potential successors and decision-making processes by incumbents and governance bodies, but do not account for interactions among actors. This paper addresses this weakness using a game-theoretic approach applied to the setting of family businesses. We model a tournament-style game in which two siblings pursue the CEO position of a family business. In the course of our analysis, we consider a variety of factors, such as the predispositions of the founder to choose one sibling over the other, the value placed on winning the top job by each sibling, the cost for the siblings of pursuing the job, and the possibility of “first-mover advantages.” We close the paper by discussing implications of our work for both family businesses and corporations.