Abstract
AbstractGrounded in the agency, socioemotional wealth and resource dependence theories, we study how debt decisions are influenced by family control and how such relationship is moderated by an internal corporate governance mechanism, the quality of the board of directors. Our results show that family‐controlled firms use more leverage at lower levels of family ownership to retain family control over the business, but once their socioemotional wealth is fulfilled at higher levels of ownership, they decrease leverage in pursuit of conservative financing policies. These actions are found to be moderated by board quality (i.e., experience and expertise) and female directors (predominantly independent).
Highlights
Financing decisions relate to the firm's credit risk and, impact on the probability of corporate failure
This is in line with our theoretical arguments that establish that family firms are usually more attached to the business given their socioemotional wealth (SEW) and have greater motivation to finance with debt
By considering that corporate governance is a system of interdependent elements that complement each other (Aguilera, Filatotchev, Gospel, & Jackson, 2008) and that culture and traditions influence the behaviour of family firms (Gómez-Mejía et al, 2007), we consider agency theory (Jensen & Meckling, 1976) and resource dependence theory (Hillman et al, 2009) to study the moderating effect of the board of directors on family firms when making financing decisions
Summary
Financing decisions relate to the firm's credit risk and, impact on the probability of corporate failure. In family-controlled firms, independent female directors are more likely to mediate leverage decisions; whereas non-independent female directors (family-affiliated) may align financing decisions to those of the family to preserve family ownership as explained by the SEW theory (Berrone, Cruz, & Gómez-Mejía, 2012) This rationale is in line with Saeed, Mukkaram, and Belghitar (2019), who argue that the influence of board gender diversity on corporate outcomes develops according to contextual features, recognizing the importance of distinct institutional pressures (i.e., socio-cultural norms). Hypothesis 4b In family-controlled firms, independent female directors are more effective in moderating the relationship of family ownership on leverage
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