| Abstract |
Using loan- and firm-level data from a government financial institution
for small and medium enterprises (SMEs) in Japan, this paper
examines the relationship between personal guarantee agreements on
bank loans by SMEs’ managers and their CEO succession. Looking at
the period after the introduction of the 2014 Guidelines for Personal
Guarantees Provided by Business Owners, which asks banks not to impose
personal guarantees on loans to SMEs, we find that receiving loans
without personal guarantees increases SMEs’ CEO succession. Combined
with SMEs’ ownership data,we also find that the response is moderated
for owner-managed firms. Our results also suggest that the connection
between personal guarantees and CEO succession is weaker for
firms in industries in which family succession is more common. We
conducted a survey and found that the causality between borrowing
without personal guarantees and succession runs in both directions.
Some firms took out loans without personal guarantees for the purpose
of facilitating CEO succession, while others found that their CEO succession
was made easier by receiving loans without personal guarantees.
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