The Role of Family Control in Determining the Capital Structure: Evidence from Non-Financial Listed Firms

Ekonomski pregled, Forthcoming

24 Pages Posted: 2 Jan 2023

See all articles by Imran Yousaf

Imran Yousaf

Wenzhou-Kean University - College of Business and Public Management

Seyed Alireza Athari

Cyprus International University; Eastern Mediterranean University - Department of Banking and Finance; Girne American University; Cyprus International University

Dervis Kirikkaleli

European University of Lefke - Department of Banking and Finance

Arshad Hassan

Capital University of Science and Technology Islamabad

Shoaib Ali

Air University - Islamabad

Date Written: December 13, 2022

Abstract

This study aims to examine the effect of family control on the corporate financing decision of firms in Pakistan. This study uses the annual data of 100 non-financial firms listed at PSX for the period 2005-2012. To estimate the impact of family control on the corporate financing decision, we employ the ordinary least square (OLS) method. The findings of the univariate analysis show that a significant difference exists between family and non-family firms based on many characteristics of firms. Multivariate analysis results show that family firms maintain significantly high "total debt ratio" and "short-term debt ratio" compared to non-family firms. There are two reasons why family firms keep high debt ratios compared to non-family firms. First, family-owned firms do not want to dilute their ownership, and that is why they fulfill their major financing needs through debt instead of issuing new shares in the market. Second, family firms in Pakistan use extra cash flows for their private benefits. These findings reveal useful insights for investors, banks, regulators, and business families of Pakistan.

Keywords: Capital structure, Family ownership, Family firm, corporate financing decision, Dilute ownership

Suggested Citation

Yousaf, Imran and Athari, Seyed Alireza and Kirikkaleli, Dervis and Hassan, Arshad and Ali, Shoaib, The Role of Family Control in Determining the Capital Structure: Evidence from Non-Financial Listed Firms (December 13, 2022). Ekonomski pregled, Forthcoming , Available at SSRN: https://ssrn.com/abstract=4300748

Imran Yousaf

Wenzhou-Kean University - College of Business and Public Management ( email )

Seyed Alireza Athari (Contact Author)

Cyprus International University ( email )

Nicosia, North Cyprus
Turkey

Eastern Mediterranean University - Department of Banking and Finance ( email )

Fmagusta North Cyprus, via Mersin-10
Turkey

Girne American University ( email )

Faculty of Architecture
Girne American University(GAU)
Girne(Kyrenia), Via Mersin-10 99428
Cyprus

Cyprus International University ( email )

Nicosia
Nicosia
Cyprus

Dervis Kirikkaleli

European University of Lefke - Department of Banking and Finance ( email )

Turkey

Arshad Hassan

Capital University of Science and Technology Islamabad ( email )

Pakistan

Shoaib Ali

Air University - Islamabad ( email )

Service Road E-9
Islamabad, 44000
Pakistan

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