How to win the succession race: empirical analysis of Palestinian family businesses

Abstract

Purpose Family businesses (FBs) have a high rate of extinction through generations; hence, it is crucial for their owners to give succession planning top priority. In light of this, the study aims to determine the key factors that significantly influence effective succession. Design/methodology/approach This study illuminates the crucial factors of effective succession among Palestinian FBs (PFBs) by relying on the relay race model. A self-administered questionnaire used to gather the data; partial least squares structural equation modeling was used to analyze the data obtained from 282 participants based on the two-step approach to evaluate structural equation models. In the first analysis stage, measurement items’ validity and reliability were tested. Convergent and discriminant validity tests for the measurement (outer) model were performed. The square root of average variance extracted (AVE) and the correlation between latent constructs were compared to evaluate the discriminant validity. The structural (inner) model and hypotheses were tested in the second analysis stage. The research model’s hypotheses relations were predicted using the coefficient of determination (R2). Findings As they draw attention from existing and future founders and incumbents of FBs that successfully complete a succession process within the Palestinian setting, the findings offer a deeper understanding of the primary familial succession factors. Where it is important to place a focus, among other things, on familial bonding and trust placed in the next generation, as well as on next generation’s credentials and capabilities, financial and operational performance of FBs, next generations desire to join the business beside the job satisfaction and the financial returns they will earn. Additionally, findings show that the size of the FB and generation, as well as the incumbent’s age and education, have positive impact on the incumbents’ willingness to step down. Originality/value The value of this study comes from the following: first, to the best of the authors’ knowledge, it is the first that conduct a quantitative analysis on succession factors, the thing that adds value to the PFBs literature. Second, this study adheres to its own willingness scale, as it aims to analyze other success factors that PFBs are not fully aware of, particularly, family bonding and trust, the qualifications and capabilities of the next generation, plus financial and operational performance of the FB.