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The “Cinderella” effect in business groups: Choosing which subsidiary is the princess

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  • Hanousek, Jan
  • Flannery, Mark J.
  • Ferris, Stephen P.
  • Hanousek, Jan
  • Kapounek, Svatopluk

Abstract

This study examines the nature of financial distress for firms within business groups distributed across twenty-five European countries from 2000 to 2018. We show that business group membership and a firm's importance within the group explain both the incidence and resolution of financial distress. We find that critical subsidiaries have a negligible chance of default and bankruptcy. Less critical firms, however, are more likely to default and liquidate. It suggests that the future resolution of financial distress could be decided during the group formation and the subsidiary's positioning. We also show the persistent effect of national legal regimes.

Suggested Citation

  • Hanousek, Jan & Flannery, Mark J. & Ferris, Stephen P. & Hanousek, Jan & Kapounek, Svatopluk, 2025. "The “Cinderella” effect in business groups: Choosing which subsidiary is the princess," International Review of Financial Analysis, Elsevier, vol. 107(C).
    • Handle: RePEc:eee:finana:v:107:y:2025:i:c:s1057521925007367
    DOI: 10.1016/j.irfa.2025.104649
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    Keywords

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    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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