Family Control and Financing Decisions

38 Pages Posted: 19 Oct 2011

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

Date Written: November 2011

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 (November 2011). European Financial Management, Vol. 17, Issue 5, pp. 860-897, 2011. Available at SSRN: https://ssrn.com/abstract=1946126 or http://dx.doi.org/10.1111/j.1468-036X.2011.00631.x

Ettore Croci (Contact Author)

Catholic University of the Sacred Heart of Milan ( email )

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

John A. Doukas

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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