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The “Cinderella†effect in business groups: Choosing Which Subsidiary is the Princess

Author

Listed:
  • Jan Hanousek, Jr.

    (Fogelman College of Business Economics, University of Memphis, United States)

  • Mark J. Flannery

    (Department of Finance, University of Florida, United States)

  • Stephen P. Ferris

    (Ryan College of Business, University of North Texas, United States)

  • Jan Hanousek

    (Department of Department of Finance and Accounting, Faculty of Business and Economics, Mendel University in Brno, Czech Republic; CEPR, London, United Kingdom)

  • Svatopluk Kapounek

    (Department of Finance and Accounting, Faculty of Business and Economics, Mendel University in Brno, Czech Republic)

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

  • Jan Hanousek, Jr. & Mark J. Flannery & Stephen P. Ferris & Jan Hanousek & Svatopluk Kapounek, 2025. "The “Cinderella†effect in business groups: Choosing Which Subsidiary is the Princess," MENDELU Working Papers in Business and Economics 2025-102, Mendel University in Brno, Faculty of Business and Economics.
    • Handle: RePEc:men:wpaper:102_2025
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    More about this item

    Keywords

    Bankruptcy; financial distress; business groups; ownership; legal origin;
    All these keywords.

    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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