Abstract
Using a sample of Chinese small and medium-sized firms, we compare financing costs for family and nonfamily firms. We find that family firms enjoy relatively lower average financing costs through mitigating agency problems, the provision of more collateral, and the greater reliance on cheaper internal finance. Family firms also make use of their advantage in the pledged assets of family members, thereby making them less subject to financing constraints. We also find that the apparent inconsistency between the willingness and likeliness to rely on internal finance for family firms largely reflects the financial constraints of smaller firms.
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