Abstract
This empirical study examines the relationship between financing decisions and corporate governance on the one side and firm performance on the other, concerning Italian large and medium private family firms. Tax-aggressive practices are not used to avoid a deprivation of socioemotional wealth, in terms of diminished reputation, caused by a possible tax-related lawsuit. Due to the low risk perception and most likely the profitable use of a larger quantity of cheaper debt, size improves performance. However, more solvent firms exhibit better results only when Return on Assets (ROA) is taken into account. The presence of descendants taking their place in the family business impairs performance. Short- and long-term debts are not related to the agency conflicts between owners and managers and between owners and creditors, therefore debt maturity has no influence on performance. Finally, the negative relationship between leverage and performance tends to reveal pecking order behaviour for the sampled firms. Key words: Private family firms, performance, financing choices, corporate governance, socioemotional wealth, agency conflicts.
Highlights
The research on family firms has developed intensively in the last two decades (Carney et al, 2015) and covered several different issues, such as succession, governance, organization theory, small- and medium-sized firms, ownership, and human resources (Benavides-Velasco et al, 2013)
This empirical study examines the relationship between financing decisions and corporate governance on the one side and firm performance on the other, concerning Italian large and medium private family firms
This paper investigates the connection between the double aspect of financing decisions and corporate governance
Summary
The research on family firms has developed intensively in the last two decades (Carney et al, 2015) and covered several different issues, such as succession, governance, organization theory, small- and medium-sized firms, ownership, and human resources (Benavides-Velasco et al, 2013). In this respect, many articles dealing with the influence of family control on performance stress the importance of several topics, such as the firm’s size, generation of family management, identity of owners and managers, as well as the country-context in which family firms operate (Miralles-Marcelo et al, 2014). When the assumptions of Modigliani and Miller (1958) are at least partly abandoned, by considering taxation, bankruptcy, asymmetric information, and agency conflicts, one finds that capital structure influences a firm’s performance
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