Family Business Succession and Its Impact on Financial Structure and Performance

In this article the authors study the impact of a family business transfer on the financial structure and performance based on a sample of 152 small- to medium-sized businesses. The aim is to identify the effects of a succession by relying on panel data gathered over the period 1991 to 2006 resulting in more than 2,000 firm–year observations. The main findings are that a transfer from the first to the second generation negatively influences the debt rate of the company, whereas in successions between later generations this effect is reversed. With respect to firm growth, analyses indicate that in first-generation companies the growth rate decreases after the transition, whereas in next-generation firms no effect on the growth level can be identified. Finally, no evidence is found that a family firm's profitability is affected by succession, which shows that a transfer should not necessarily be seen as a negative event in the life cycle of a family business.