Transparency and Financing Choices of Family Firms

56 Pages Posted: 26 Jul 2010

See all articles by Tai-Yuan CHEN

Tai-Yuan CHEN

Department of Accounting, HKUST Business School, Hong Kong University of Science & Technology

Sudipto Dasgupta

Chinese University of Hong Kong, Lancaster University, and CEPR

Yangxin Yu

City University of Hong Kong

Multiple version iconThere are 2 versions of this paper

Date Written: July 1, 2010

Abstract

We examine how corporate transparency and financing choices differ for family and non-family firms in the S&P 1500 Index. While transparency on average is better for firms in the S&P 500 Index than for firms in the S&P MidCap 400 and S&P SmallCap 600 indices, the improvement is much larger for family firms. Outside the S&P 500, family firms are less transparent than their non-family counterparts, whereas the opposite is true for firms in the S&P 500 Index. Family firms outside the S&P 500 Index have shorter debt maturity and higher debt ratios than large family firms (in the S&P 500) as well as non-family firms. These results on firms’ financial choices are consistent with the notion that small family firms prefer opacity and enjoy control benefits at the cost of over-reliance on “monitored finance”, while other firms, especially the large family firms, prefer transparency and the lower cost of external finance.

Keywords: Family firms, Transparency, Debt Maturity, Capital Structure

JEL Classification: G32, G34

Suggested Citation

Chen, Tai-Yuan and Dasgupta, Sudipto and Yu, Yangxin, Transparency and Financing Choices of Family Firms (July 1, 2010). Available at SSRN: https://ssrn.com/abstract=1648675 or http://dx.doi.org/10.2139/ssrn.1648675

Tai-Yuan Chen

Department of Accounting, HKUST Business School, Hong Kong University of Science & Technology ( email )

Clear Water Bay
Kowloon
Hong Kong

Sudipto Dasgupta (Contact Author)

Chinese University of Hong Kong, Lancaster University, and CEPR ( email )

CUHK, Cheng Yu Tung Building, Room 1224
Shatin, NT
Hong Kong
Hong Kong

Yangxin Yu

City University of Hong Kong ( email )

Hong Kong

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