The financial burden of passing on the legacy: Exploring ownership succession financing in family firms

Abstract

This study investigates how professionalization practices in family firms influence bank loan officers' decisions to finance intergenerational ownership succession. While succession financing is critical for continuity, research on its financial dimension remains scarce. Drawing on agency theory and professionalization literature, we examine whether practices such as the successor's prior work experience, the incumbent's ongoing role, the presence of nonfamily board members, family meetings, and the use of external advisors affect lending behavior. Using a conjoint experiment with 1,520 loan assessments from 95 Belgian bank officers, we find that professionalization significantly shapes lending decisions. Specifically, external-oriented practices-such as independent board members and family business advisors-have a stronger positive effect than family focused practices like incumbent involvement or family meetings. This study contributes to family business and finance research by addressing the underexplored role of banks in succession financing and demonstrating the value of professionalization for securing external funding.