Lack of Successors, Firm Default, and the Performance of Small Businesses

Author Name TSURUTA Daisuke (Nihon University)
Creation Date/NO. July 2019 19-E-047
Research Project Study Group on Corporate Finance and Firm Dynamics
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We investigate the effects of the lack of successors on small businesses with an elderly manager. Using firm-level data from Japan, which is a country with an ageing population, we find the following results.

First, smaller, younger, highly leveraged, and non-growing firms are likely to have no successor. Second, firms with an elderly manager are more likely to exit and default if they have no successors, and this was particularly the case during the period of the global financial crisis around 2009. This result suggests that these firms have less incentive to repay debts because they are not going concerns. As a result of the high probability of default and exit, the annual rate of change in bank borrowing is low if firms with an elderly manager have no successor. Third, using the propensity score matching method, we find that sales growth for firms with no successor is lower than that for other firms.