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Probability and timing of succession or closure in family firms: a switching regression analysis of farm households in Germany

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Abstract:

In a two-step econometric approach that corrects for selectivity bias, we analyse the determinants of the probability of succession and the timing of succession or closure in a unique sample of 233 North-German family farms. We set up the succession decision as an intertemporal optimization problem. The empirical results show that larger and more profitable farms, which are specialized in dairy production are significantly more likely to have an intra-family successor. We find that a nonagricultural education of the current manager or the successor delay succession. When the family decided to stop farming operations, nonagricultural education of the owner delays closure of the farm. Closure occurs earlier if the manager is able to lease out the land in the process of retirement. Although farm households react to incentives originating from tax and pension regulations, many important determinants of succession are beyond the control of policymakers.

Document Type: Research Article

DOI: https://doi.org/10.1080/00036840601131722

Affiliations: 1: Leibniz Institute of Agricultural Development in Central and Eastern Europe (IAMO), Halle (Saale), Germany 2: Department of Food Economics and Consumption Studies, University of Kiel, Germany 3: Department of Economics, Vienna University of Economics and Business Administration, Vienna, Austria

Publication date: 2009-01-01

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