Abstract
This research examines the nexus between economic policy uncertainty (EPU) and financial distress likelihood (FDL) in a panel of 145,611 European Small and Medium-sized Enterprises (SMEs) over ten years (2012–2021). The study uncovers a positive relationship between EPU and financial distress probability, indicating that heightened EPU correlates with an increased likelihood of financial distress for SMEs. Moreover, the research explores the moderating impact of family ownership, revealing that family-owned SMEs demonstrate resilience by mitigating the adverse effects of EPU on financial stability. Surprisingly, family SMEs performing above aspirations amplified the positive impact of EPU on FDL, indicating that family firms performing below aspirations are better equipped for rising EPU, resulting in lower FDL. This study provides new insights into the challenges faced by SMEs during economic uncertainty, emphasizing the protective role of family ownership. The findings carry implications for policymakers, urging customized strategies to support SMEs during uncertain economic times, particularly acknowledging the resilience of family-owned organizations.