Entrepreneurship, Inherited Control and Firm Performance in Italian SMEs

Despite the pervasive presence of family business worldwide, especially among small and medium sized companies, nearly all past studies on family founder succession have focused on large, public companies. We evaluate the issue of the inherited firm control on performance in an economic setting with a large presence of small- and medium-sized private firms run as family businesses. Our paper contributes to the existing literature in three ways. The first concerns the sample characteristics. By focusing on the transfer of business in private SMEs, our study helps to fill a gap in the existing literature that is largely concerned with public companies listed in official market. We set up a unique dataset by matching two different data sources: firstly, a cross-sectional survey dataset collected directly from more than 3,500 companies by means of a questionnaire and, secondly, a company account dataset drawn from Cerved. We merge survey data with balance sheet data in order to perform the econometric analysis. The article's second contribution is related to the effect on performance caused by the transfer of business within the family. Our major results show i) a founder effect in the Italian manufacturing industry and ii) a large drop in the post-succession performance in family-run businesses. Finally, we provide new evidence on the relationship between pre-succession firm (and industry) characteristics and past succession performance. By using a performance-based control group matching method to control for the effect of a pure mean reverting process in firm performance, we show that the observed large drop in the post-succession company performance is attributable to good performing companies, especially when operating in highly competitive industries.