Family firm successions: First-generation transitions in Latvia

• Published in: Finance research letters 2024-06, Vol.64, p.105410, Article 105410
• Main Authors: Bērziņš, Jānis, Pajuste, Anete
• Format: Article
• Language: English
• Subjects: Corporate governance; Family firms; Family ownership; Return on assets (ROA); Succession planning
• ISSN: 1544-6123
• DOI: 10.1016/j.frl.2024.105410

•Explores 1st to 2nd gen ownership transition in Latvian family firms.•Uses a unique cohort from post-Cold War economic transition.•Finds family firms outperform nonfamily by 3.1% in ROA.•Highlights slow succession pace; 23 years for 16% 2nd gen ownership. We examine the emergence, succession, and performance of the initial cohort of family firms in Latvia. Latvia offers a natural setting to examine succession challenges faced by first-generation firms because a majority of these firms were established shortly after the country regained independence in the early 1990s. Our findings indicate that in 44% of sample firms the founding family did not have a majority stake at incorporation, but accumulated a majority stake over the first few years (1991–1999). It takes seven years for the average family ownership stake to exceed 75% and 23 years for firms with second-generation owners to reach 16% of the sample. Notably, approximately 80% of the sample firms are still majority-owned and managed by their founders. In line with previous research, we find that family firms outperform nonfamily firms by 3.1% in return on assets (ROA).