Financial Behaviours of Family and non-Family Firms in Belgium

Abstract

The aim of this paper is to distinguish the financial behaviour adopted by family firms in comparison with non-family firms in an environment where tax regulation can influence the financing costs of equity capital. Indeed, the coming into force of an allowance for corporate equity on the Belgian market creates a field where relevant investigations on capital structure can be carried out. Moreover, the literature review shows how little attention has been paid to family firms in terms of financial behaviour, the main research focusing on family SMEs (Colot & Croquet, Management et Avenir, 2007; Lopez-Gracia & Sanchez-Andujar, Family Business Review, 2007). The analysis of our results demonstrates a divergence between family and nonfamily firms. Nevertheless, this situation must be appreciated for the period 2006– 2010, since no significant evidence regarding a behavioural dissimilarity was found for the previous period, 2002–2005. While family firms seem to pursue an indebtedness target ratio and to finance their funding deficit by issuing stocks, non-family firms follow none of the theories considered in our research. Hence, the financial policies adopted by family firms shift towards a reduction of their indebtedness level and an increase of their financial independence level. Such a situation allows them to limit their financial distress costs (Frank & Goyal, Journal of Financial Economics, 2003) and to benefit from a tax advantage owing to the deductibility of a fictitious and undisbursed interest expense. The double benefit resulting from the coming into force of the new tax regulation could thus exercise an effect on the financial behaviour adopted by family firms. Nonetheless, we cannot draw a robust conclusion, as the observation period 2006–2010 was perturbed by the consequences of the financial and economic crisis. In such a context, it would be inappropriate to attribute Int Adv Econ Res (2012) 18:459–460 DOI 10.1007/s11294-012-9372-1