Int. J. of the Economics of Business, Vol. 12, No. 2, July 2005, pp. 183–192 1357-1516 Print/1466-1829 Online/05/020183–10 © 2005 International Journal of the Economics of Business DOI: 10. 1080/13571510500127246 The Survival of Family Firms: The Importance of Control and Family Ties ENRICO SANTARELLI and FRANCESCA LOTTI Taylor and Francis Ltd CIJB112707.sgm 10.1080/13571510500127246 International Journal of the Economics of Business 1357-1516 (print)/1466-1829 (online) Original Article 2005 International Journal of the Economics of Business 12 2 000000July 2005 EnricoSantarelli Economics DepartmentUniversity of BolognaStrada Maggiore 4540125 BolognaItaly santarel@spbo.unibo.it ABSTRACT The aim of this article is to analyze the survival patterns of a group of family firms which have already spent at least 25 years in the market. To this end, we use the Kaplan–Meier product limit estimator supplemented with qualitative information gath- ered by direct observation and discussions with entrepreneurs. The main findings are that small family firms which have reached their 30th year in the market face a very high risk of sudden exit, increasing with firm age. Further control carried out by means of interviews with entrepreneurs identifies problems connected with succession as one of the main causes of the decision to close down. Key Words: Family Firms; Succession; Survival Function; Kaplan–Meier Estimator; Hazard Function; Italy. JEL Classifications: L20, C34, C41, M13. 1. Introduction For entrepreneurs who start a new firm, there sooner or later comes the moment when they decide, or are forced by circumstances, to retire. This decision gives rise to a succession problem which can be solved either by hiring professional managers or by appointing the founder’s heirs to run the firm. If a professional manager or a heir is appointed, the founder (principal) can decide whether to stay and monitor him (which he usually does) or to give the agent acting on his behalf Rotating initials. We would like to thank Richard Caves, Matt Gentzkow, Alberto Pozzolo, and Lorraine Uhlaner for useful suggestions and comments. We thank the participants in the Industrial Organization Workshop at Harvard University (March, 2002), the XXIX EARIE Conference (Madrid, September 2002) and a seminar held at the Bank of Italy. Financial support from Assindustria Rimini and Fondazione Cassa di Risparmio di Rimini is gratefully acknowledged. Alessandra Giraldi provided outstanding research assistance. All remaining errors are our own. The opinions expressed by Francesca Lotti do not necessarily reflect those of the Bank of Italy. Enrico Santarelli, Economics Department, University of Bologna, Strada Maggiore 45, 40125 Bologna, Italy; e-mail: santarel@spbo.unibo.it; Max Planck Institute for Research into Economic Systems—Entrepreneurship, Growth and Public Policy Group, Jena; and ENCORE, Amsterdam and Francesca Lotti, Research Department, Bank of Italy, via Nazionale 91, 00184 Rome, Italy; e-mail: francesca.lotti@bancaditalia.it