Family Control and Financing Decisions
European Financial Management, Vol. 17, No. 5, pp. 860-897, 2011
50 Pages Posted: 14 Jan 2010 Last revised: 9 Jan 2012
This study uses a comprehensive European dataset to investigate the role of family control in corporate financing decisions during the period 1998-2008. We find that family firms have a preference for debt financing, a non-control-diluting security, and are more reluctant than non-family firms to raise capital through equity offerings. We also find that credit markets are prone to provide long-term debt to family firms, indicating that they view their investment decisions as less risky. In fact, our empirical results demonstrate that family firms invest less than non-family firms in high-risk, research and development (R&D) projects, but not in low-risk, fixed-asset capital expenditure (CAPEX) projects, suggesting that fear of control loss in family firms deters risk-taking. Overall, our findings reveal that the external financing (and investment) decisions of family firms are in greater (lesser) conflict with the interests of minority shareholders (bondholders).
Keywords: family firms, financing decisions, equity issues, debt issues, capital structure
JEL Classification: G32
Suggested Citation: Suggested Citation