IMPACT OF FAMILY OWNERSHIP ON FINANCING DECISIONS: A COMPARATIVE ANALYSIS OF COMPANIES LISTED AT THE KSE

Abstract

The current study attempts to investigate debt and dividend policies under the umbrella of capital structure’s theories in both organizational types i.e. family owned business (FOB) and non-family owned business (NFOB). Two threshold points of ownership structure (25% & 50%) were used to distinguishing FOB from NFOB. A sample of 280 listed firms at the KSE was collected for the period 2002- 13.Generalized Method of Moments (GMM) was applied on panel data to estimate the coefficients of variables. The empirical results indicated the weak application of pecking order theory and higher payout ratio in family firms comparatively. The study provided explanation regarding speedier rebalancing the target capital structure of family firms due to easier access to debt and long term presence of the family in the firm. However, FOBs smooth dividends to lesser extent than their counterpart NFOBs indicate lower agency and information asymmetry problems in them. SECP as well as stock exchanges are advised to bring required changes in corporate laws to ensure lucid and verifiable disclosure regarding dividend policy in their reports, prospectus and websites etc