Impact of the free rider effect, a form of social loafing, on the intergenerational transfer of family businesses

Family businesses play a crucial role in global economies not only through their long-established structures inherited from previous generations, but also by generating employment, embracing innovative approaches and maintaining strong ties to social values. These enterprises are fundamental drivers of economic growth and social stability in many countries. However, the intergenerational transfer of such businesses involves complex processes that require careful management at both organizational and psychosocial levels. This thesis aims to understand and analyze the impact of the free rider effect, a type of social loafing that emerges during the intergenerational transition process of family businesses on the sustainability of companies. The study is based on semi-structured interviews carried out with 15 members from family businesses operating across various sectors in Türkiye. The findings reveal that the free rider effect leads to perceptions of unfairness in responsibility sharing, reduces motivation among family members and disrupts internal balance within the organization. This study particularly highlights that this effect becomes more visible during periods when second-generation family members begin to take on active managerial roles. The data indicate that some individuals, by relying on symbolic privileges such as the family name or kinship ties, claim rights without assuming equivalent responsibilities, thereby contributing to managerial imbalances. Furthermore, it has been observed that family members who are not involved in the company's active management but are involved in decision-making processes reinforce these tendencies. In contrast, strengthening corporate governance structures, clarifying role definitions, and implementing regulatory tools such as a family constitution emerge as effective measures in mitigating the free rider effect. The results of the study also emphasized that, in order for family businesses to sustain their long-term assets, not only financial and managerial factors but also emotional and social factors need to be taken into account. Within the decision-making process regarding strategic choices such as ensuring the continuity or sale of the company, the dilemmas among family members and the hesitations towards external support tools like consulting services have also been analyzed. At this point, the strong family ties make these decisions more complex and multi-layered. In conclusion, this thesis makes an original contribution to the literature by addressing the challenges of intergenerational transfer in family businesses through the lens of the free rider effect. By shedding light on how this dynamic influences intra-family relations, managerial performance and long-term sustainability, the study also provides practical insights for stakeholders aiming to strengthen the role and resilience of family businesses in the evolving business landscape. In this respect, it serves as both an academic and practical guide for future-oriented decision-making within family enterprises.