Investigating performance implications of intra‐family ownership successions: Equity transfers with versus without debt creation

Abstract

We relate two routes of intra‐family ownership succession (i.e., succession financed with versus without debt) to post‐succession financial performance. Investigating a sample of 203 privately‐held family businesses, our results show that the succession‐induced performance paths of the two subgroups are significantly different. When debt is used to fund the intra‐family share transfer, financial performance significantly increases in the post‐succession period. This phenomenon is absent when no debt is used to fund succession. We attribute the performance gap to a governance device characterising the debt‐financed succession route: debt creation at succession leads to firm‐level efficiency gains.