Sabotage! Whistle-blowing Inside Family Firms During Succession Tournaments

We document an unusual surge in fraud investigations for family firms with multiple sons who compete for leadership successions. Shareholders negatively react to the news, while such fraud investigations are concentrated in firms run by families with extensive internal conflicts, leading to strong whistle-blowing incentives inside the family (i.e., sabotage). Using the sudden death of a chairman as an exogenous shock that increases conflicts among potential heirs of the family firm, we find sharply increasing fraud investigations after the chair's death. Overall, our results shed new light on the significant spillover from family governance to corporate governance in family-run organizations.