The “Cinderella†effect in business groups: Choosing Which Subsidiary is the Princess

Jan Hanousek (jan.hanousek@memphis.edu), Mark Flannery, Stephen P. Ferris (stephen.ferris@unt.edu), Jan Hanousek (jan.hanousek@mendelu.cz) and Svatopluk Kapounek
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Jan Hanousek: Fogelman College of Business Economics, University of Memphis, United States
Stephen P. Ferris: Ryan College of Business, University of North Texas, United States
Jan Hanousek: Department of Department of Finance and Accounting, Faculty of Business and Economics, Mendel University in Brno, Czech Republic; CEPR, London, United Kingdom
Authors registered in the RePEc Author Service: Jan Hanousek Jr. (jan.hanousek12@gmail.com) and Jan Hanousek

No 2025-102, MENDELU Working Papers in Business and Economics from Mendel University in Brno, Faculty of Business and Economics

Abstract: This study examines the nature of financial distress for firms within business groups distributed across twenty-five European countries from 2000 to 2018. We show that business group membership and a firm’s importance within the group explain both the incidence and resolution of financial distress. We find that critical subsidiaries have a negligible chance of default and bankruptcy. Less critical firms, however, are more likely to default and liquidate. It suggests that the future resolution of financial distress could be decided during the group formation and the subsidiary's positioning. We also show the persistent effect of national legal regimes.

Keywords: Bankruptcy; financial distress; business groups; ownership; legal origin (search for similar items in EconPapers)
JEL-codes: C23 G32 G33 (search for similar items in EconPapers)
Pages: 34
Date: 2025-03
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