Capital market financing of family enterprises

Abstract

The objective of this study is to identify funding opportunities for family businesses with the capital market instruments, and the risks associated with the implementation of common strategies. A family enterprise activity is guided not only by typical economic objectives, but also by striving for maintaining continuity and ensuring succession of the next generation. Therefore, the preservation of economic independence is of particular importance. Its significant determinant is that the funding to a large extent is based on the equity. A bank loan is traditionally perceived as the primary source of external financing. Bank loans access restrictions, as a result of new prudential regulations, force the family businesses to take into consideration alternative ways of funding. Capital market offers a wide range of financial instruments from debt securities through hybrid instruments to external equity. Each of these instruments, to varying degrees, protects the economic independence of an enterprise. For strategic purposes of family business, particularly well adjusted is funding using the mezzanine capital. It provides funds which features that are similar to the ones of equity, and at the same time reducing the influence of investors on the functioning of an enterprise. Venture capital financing, however, poses the risk of loss of control over the enterprise.