Why are Family Firms so Small?

65 Pages Posted: 17 Mar 2010

See all articles by Laurent Bach

Laurent Bach

ESSEC Business School - Finance Department; Swedish House of Finance

Multiple version iconThere are 2 versions of this paper

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

Suggested Citation

Bach, Laurent, Why are Family Firms so Small? (March 15, 2010). Available at SSRN: https://ssrn.com/abstract=1571630 or http://dx.doi.org/10.2139/ssrn.1571630

Laurent Bach (Contact Author)

ESSEC Business School - Finance Department ( email )

Avenue Bernard Hirsch
BP 105 Cergy Cedex, 95021

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm

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