Effects of Concentrated Ownership and Owner Management on Small Business Debt Financing*

Abstract

Using unique data and a new powerful Monte Carlo‐based statistical tool, we examine the effects of concentrated ownership and owner–management (CO‐OM) on the creditor–shareholder agency conflicts in small firms. A significant CO‐OM effect from the small business owner's view, but insignificant from the commercial lenders' perspective, is found. Special features of informational asymmetry problems in small firms with CO‐OM are also highlighted. Theoretical and empirical contributions are made to the small business management and corporate governance literature. Findings obtained from this research have important implications for small business practitioners as well as researchers, and this study can serve as a reference for policymakers and institutional lenders to assist small firms in successfully raising money through debt financing. In addition, a new powerful methodology is introduced to deal with various potential statistical biases and can be further applied to this line of research.