Discussion paper
DP17775 The Unloved Stepchild: Why Some Firms Are Allowed to Die in a Business Group
This study examines the nature of financial distress for firms within business groups across twenty-five European countries during 2000–2018. We show that business-group membership affects both the likelihood and resolution of financial distress. Whether tunneling or propping of a particular firm occurs depends on the group structure as well as the importance and value of the firm to the group. Our findings show how a firm’s importance within a business group helps to explain how financial distress is resolved. We also observe the long-lasting effects of national legal regimes on how financial distress is resolved within a business group.
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