Abstract
Family-controlled firms are a unique form of business because of the special nature of its ownership structure, management style, and financing needs. Moreover, these firms face difficulty in achieving a balanced mix of available financing alternatives (i.e., debt and equity), and this mix has a direct impact on the firms’ profitability, risk, and value. Therefore, the purpose of this study is to review the literature on how family involvement in business via ownership, management, and control affects capital structure decisions. The review showed that in a comparison with nonfamily businesses, family-controlled firms on average have higher debt levels. Additionally, family ownership is positively associated with debt financing, and the participation of family members in a firm’s top management leads to an increase in the firm’s overall debt level. Insights generated from the current study highlight the critical influence of family involvement in business on key financial policies such as capital structure decisions.
Highlights
Family-controlled firms (FCFs) are the most predominant form of business around the world
We concluded that FCFs on average hold higher debt levels compared with nonfamily businesses and the participation of family members in top management leads to an increase in firm debt levels
The main purpose of this study was to review the literature on how family involvement in business through ownership, management, and control affects capital structure decisions
Summary
Family-controlled firms (FCFs) are the most predominant form of business around the world. Firms that are 100% owned and managed by the founding family tend to have more goal congruence and less conflict These companies are more likely to attain higher performance rates compared with businesses with different structures of ownership concentration (Che & Langli, 2015). We concluded that FCFs on average hold higher debt levels compared with nonfamily businesses and the participation of family members in top management leads to an increase in firm debt levels. The current study explores the impact of family influence on capital structure decisions through different proxies as the degree of family involvement in ownership, management, and control, whereas the majority of the prior studies have focused on using these proxies separately. Section two presents the discussion, and the last section presents the conclusion and offers directions for future research
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