Socioemotional wealth and probability of financial distress

This paper analyzes a firm’s characteristics which affect the probability of financial distress. It takes into account accounting variables, ownership and management characteristics. In particular it studies the effect of the ultimate controlling owner nature, that is family or non-family control, on a firm’s likelihood to run into financial distress. This research focuses on a large sample of Italian private family and non-family firms for the period 2004-2013, and, drawing on the Socioemotional wealth framework, studies the effect of family control and influence by the means of different forms of family involvement into the business. It takes into account family indirect influence by ownership and direct influence by the means of a family CEO or by the presence of family members on the board. Our results point out that family businesses are less likely to incur in financial distress than non-family firms. Moreover a family CEO reduces a firm’s likelihood of financial distress. On the other hand the presence of multiple family members on board increases this probability, but the effect is lower in the first generational stage