Family firms, risk-taking and financial distress

Pietro Gottardo,Anna Maria Moisello

doi:10.21511/ppm.15(2-1).2017.01

Abstract

The authors investigate the question of whet her qualitative characteristics are likely to explain the survival of family firms in case of financial distress and whether these variables improve the explanatory power of quantitative variables in clarifying the different probability of distress between family and non-family firms. They focus their attention on the impact of the controlling owner and, using the Socioemotional Wealth theory (SEW), study the role of the family involvement in mitigating or accentuating the likelihood of distress. Using a dataset of 1,137 Italian family and non-family firms during 2004–2013, the authors found that family firms are significantly less likely to incur distress than non-family firms. The board dimension and the number of family members on board affect the probability of distress even controlling for some firm risk characteristics such as beta and ROA volatility, and there is also evidence of a gender mitigating effect in case of a female CEO.

Highlights

The evaluation of a company’s financial status and probability of financial distress has long been discussed in finance and accounting studies (Beaver, 1966; Altman, 1968, 2000; Altman et al, 1977; Ohlson, 1980; Zavgren, 1985; Lau, 1987; Sun, 2008)
Ership, management and board using two dummies to identify whether the firm is a family company We apply the above hazard model to all the stacked (Fam), the presence of a family CEO (Fceo), and the data, and separately to the family and non-family number of family members on the board (NumFB). subsamples
One more dummy detects the presence of women family and non-family firms, which entered or not leaders in our firms holding the position of CEO a financial distress procedure in the sample period

Summary

Introduction

The evaluation of a company’s financial status and probability of financial distress has long been discussed in finance and accounting studies (Beaver, 1966; Altman, 1968, 2000; Altman et al, 1977; Ohlson, 1980; Zavgren, 1985; Lau, 1987; Sun, 2008). As a matter of fact, families are “risk willing”, in terms of performance hazard, in order to maintain a firm’s control and preserve the non-financial returns they derive from the business, but, at the same time, they are averse to entrepreneurial risk (Gomez-Mejia et al, 2007).

Results

Conclusion