The Impact of Family Control of Firms on Leverage: Australian Evidence

Abstract

This paper investigates whether leverage of family controlled firms differs from that of non-family controlled firms. Using data from publicly listed industrial firms in Australia traded over 1998 to 2002, family controlled firms appear to have higher levels of leverage than non-family counterparts. Results indicate that the families' incentive to use debt as a means of concentrating voting power outweighs the need to reduce debt in order to mitigate firm risk. Additional analyses show that the desire to use debt as a means for concentrating control is stronger for both smaller family firms and family firms operating in the mining sector. These results add new findings to the leverage literature.

Keywords: family firms, leverage, private benefits of control

JEL Classification: G32