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

See all articles by Ettore Croci

Ettore Croci

Catholic University of the Sacred Heart of Milan

John A. Doukas

Old Dominion University - Strome College of Business

Halit Gonenc

University of Groningen - Faculty of Economics and Business

Multiple version iconThere are 3 versions of this paper

Abstract

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

Croci, Ettore and Doukas, John A. and Gonenc, Halit, Family Control and Financing Decisions. European Financial Management, Vol. 17, No. 5, pp. 860-897, 2011. Available at SSRN: https://ssrn.com/abstract=1535382

Ettore Croci

Catholic University of the Sacred Heart of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

John A. Doukas (Contact Author)

Old Dominion University - Strome College of Business ( email )

2080 Constant Hall
Suite 2080
Norfolk, VA 23529-0222
United States
757-683-5521 (Phone)

HOME PAGE: http://www.efmaefm.org/0DOUKAS/doukas.php

Halit Gonenc

University of Groningen - Faculty of Economics and Business ( email )

P.O. Box 100
Groningen, 9700 AV
Netherlands
+31 0 50 363 4237 (Phone)
+31 0 50 363 3850 (Fax)

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