Why are Family Firms so Small?
65 Pages Posted: 17 Mar 2010
Date Written: March 15, 2010
I ask whether family firms provide stability to their stakeholders at the expense of growth. I build a model where aversion to external finance induces family-minded entrepreneurs to invest in smaller and less risky projects.
Predictions are tested using an original panel of French firms. The main finding is that family firms are smaller by 30% in terms of sales. However, these firms also choose less volatile growth paths. Financial management patterns are consistent with the model : family firms incur less debt and hold more cash. The results hold after controlling for unoberved heterogeneity and potential confounding factors.
Keywords: Family Firms, Firm Size, Firm-level Volatility and Financial Policy
JEL Classification: D21, G3, G32
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