Family Businesses Succession & Valuation Practices

This dissertation seeks to gain a deeper understanding of profitability in family business succes-sions, including its promoting and inhibiting factors, as well as valuation practices. The disserta-tion consists of three chapters, which are written as three separate academic research papers that can be read independently of each other. The first two chapters focus on family business succes-sion and the third and final chapter concerns valuation practices.
The first chapter looks at family business succession from a cross-disciplinary perspective, in-cluding the key dissertational issues of financial performance, including its promoting and inhib-iting factors as well as valuation aspects. This first paper explores the academic landscape of family business succession, through a comprehensive and integrative review of 262 articles cov-ering the field. The paper provides a framework of a succession life cycle with three stages and the research conducted within each stage. This constitutes an accessible pool of knowledge for both academics and family business practitioners and an overview of key research themes and subthemes. This enables an identification of future research avenues, encouraging scholars to ex-plore how the different succession stage factors may be linked and influence one another, poten-tially connecting variables across disciplinary fields with financial performance.
The second chapter explores one of the future research avenues identified in the first chapter and investigates the role of the succession design in family CEO successions. Specifically, the paper investigates the role of overlap in employment and/or leadership between the predecessor and the successor in CEO successions and finds overlap to have a general negative impact on firm finan-cial performance around CEO succession with costly and dysfunctional consequences for both family and non-family CEO succession outcomes.
The third and final chapter moves beyond the family firm lens and examines general valuation practices, offering new insights into equity analysts’ long-term forecasts by analysing the later stages of the Discounted Cash Flow (DCF) valuation model. The findings show that while analysts tend to be optimistic during the explicit forecast period, optimism disappears in the maturation stage, suggesting that standard DCF model practices assist analysts in forming more accurate long-term forecasts. Although firm valuation is a separate research field from family business succession, firm valuation permeates the entire succession process. Valuation carries profound implications for multiple aspects of the succession, whether in family successions, where an in-ternal valuation is carried out, or in non-family successions, where an external valuation is per-formed. In both cases, the firm’s fair value needs to be estimated by applying valuation models, such as the Discounted Cash Flow model and valuation multiples (Skatteministeriet, 2019), in-cluding multiples from precedent transactions and publicly listed peers.
The following section provides a brief abstract of each of the three chapters.