Lone founder, family ownership and post-succession financial distress: the moderating effect of owners' companions

Rizwan Ali, Ali Amin, Ramiz Ur Rehman and Collins G. Ntim

International Journal of Managerial Finance, 2025, vol. 22, issue 1, 176-204

Abstract: PurposeThe characteristics of the family businesses change after the transition of a firm to the next generation. We examine the effects of post-succession behavior of lone founder firms and family firms on the level of financial distress. Moreover, we investigate the moderating role of owners' companions on these relationships.Design/methodology/approachWe used a sample of 3971 firm-year observations of non-financial firms listed on the Pakistan Stock Exchange over the period 2012 to 2024. To test the hypotheses, we employed ordinary least squares regression analysis and further applied generalized method of moments estimation, two-stage least squares analysis and Heckman two-stage model to check the robustness of the results.FindingsDrawing on agency theory and social identity theory, we find that lone founder firms experience higher levels of financial distress both during the founder's tenure and in the post-succession period. In contrast, family firms exhibit lower levels of financial distress, a pattern that continues after the business is passed on to the next generation. Additionally, we highlight the beneficial role of owners' companions in mitigating financial distress during the post-succession period in both lone founder and family-owned firms.Originality/valueOverall, our study provides novel evidence on the transition of lone-founder firms and family-owned firms to the next generation, as well as the moderating influence of the owner's companions on the likelihood of financial distress in the context of an emerging economy.

Keywords: Family owners; Family business succession; Financial distress; Social identity theory (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijmfpp:ijmf-04-2025-0227

DOI: 10.1108/IJMF-04-2025-0227

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