Is there Any Specific Equity Route for Small and Medium-Sized Family Businesses? The French Experience

Abstract

This article presents a precise typology of French initial public offerings (IPOs) with the underlying aim of suggesting that small and medium-sized family businesses could have a specific approach to capital dilution. Our analysis breaks free from the traditional “family versus nonfamily business methodology” and is based first on a global cluster analysis. We aimed to prove that family businesses were not only different but also specific. Empirical results make it possible to consider that there is a specific attitude among family businesses aiming at quotation. The sample is composed of 131 IPOs. The study covers the period from January 1997 to May 1999 and includes all the IPOs that ocurred during these two-and-a-half years. This period was probably the most active period for the French sections of the stock exchange dedicated to small and medium-sized companies. What inspired this study was our feeling that there was a new competition between venture capitalist companies and the stock exchange: recent experience on the financial markets clearly highlights the fact that many companies preferred to go public rather than to significantly open their equity structure to private investors. Consequently, the first aim of this research was to prove that the equity route of some small and medium enterprises (SMEs) no longer follows the linear process of dilution as supposed by the classical financial theory (Myers, 1984). The second aim was to demonstrate that the approach of small and medium-sized family businesses is closer to the classical equity route (regular process of dilution), whereas fast-growing and young companies prefer to go public.