Family Ownership, Financing Constraints and Investment Decisions

43 Pages Posted: 7 Mar 2008 Last revised: 10 Jan 2010

See all articles by Christian Andres

Christian Andres

WHU - Otto Beisheim School of Management

Date Written: December 15, 2009


This paper provides an empirical answer to the question of how the unique incentives of founding families influence investment decisions. Contrary to theoretical considerations, the results indicate that family firms are not more susceptible to external financing constraints. When compared to companies of similar size and dividend payout ratio, the investment outlays of family firms are consistently less sensitive to internal cash flows. Family businesses are more responsive to their investment opportunities and seem to invest irrespective of cash flow availability. The findings suggest that founding family ownership is associated with lower agency costs and can help to diminish information asymmetries with external suppliers of finance.

Keywords: Family Firms, Ownership Structure, Investment Policy, Corporate Governance

JEL Classification: G31, G32

Suggested Citation

Andres, Christian, Family Ownership, Financing Constraints and Investment Decisions (December 15, 2009). Available at SSRN: or

Christian Andres (Contact Author)

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179

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