When Owners Take Control: How Ownership Structure Shapes Financial Distress in Private SMEs

Sammanfattning

Financial distress is becoming increasingly relevant as insolvencies continue to rise globally. While prior research examines how ownership structure relates to financial distress, much of this research focuses on publicly listed companies. To bridge this gap, this report examines how ownership concentration and owner involvement in management are associated with the probability of financial distress in private Small and Medium-sized Enterprises (SMEs). Building on agency theory, we hypothesize that ownership concentration is associated with a higher probability of financial distress, while owner involvement in management is associated with a lower probability of financial distress. We also examine whether the relationship between owner involvement in management and financial distress depends on the level of ownership concentration. Using a panel dataset of 4438 UK private independent SME manufacturing firms covering the period 2018-2025, and applying logistic regression models, we find that owner involvement in management is associated with a lower probability of financial distress, with no evidence that this association changes depending on the level of ownership concentration. Ownership concentration is not associated with financial distress in the full sample. However, when removing observations where the largest owner owns 100% of the firm, we find that higher ownership concentration is associated with a lower probability of financial distress, contrary to our hypothesis. Based on these findings, we discuss how agency theory mechanisms may operate differently in private SMEs than in listed firms and highlight the need for further research on ownership structures, agency problems, and financial distress in private firms.