Abstract
Czech family businesses are currently experiencing their first changeover of generations in history. The first generation (founders or successors), two or more generations collectively operate in management and administrative authorities. This article aims to compare and evaluate preference for use of debt or equity financing in family businesses with the differing involvement of generations and the diversity of its allocation for the specific need of the company’s growth. This empirical study is performed based on a qualitative analysis of 245 family businesses. Hypotheses were confirmed using the Pearson correlation coefficient. This study confirms the dependence of equity and debt financing on the number of generations in management. This brings differing perspectives, opinions, and practices for financial management in the sense of a preference for debt or equity financing. The need for debt arises at the moment of compensating the transfer of ownership between generations. The analysis results indicate that family businesses managed by one generation prefer equity financing, companies managed by first and second generations prefer debt financing, and companies managed by second and third generations prefer equity financing. AcknowledgmentThe result was created in solving the project TA ČR ETA 2 (STA02018TL020) “Family businesses: Value drivers and value determination in the process of succession”, TL02000434. We are grateful also to representatives of enterprises who were willing to participate in this research.
Highlights
Businesses are an important part of the economies of emerging and developed countries alike
The first generation, two or more generations collectively operate in management and administrative authorities
This article aims to compare and evaluate preference for use of debt or equity financing in family businesses with the differing involvement of generations and the diversity of its allocation for the specific need of the company’s growth. This empirical study is performed based on a qualitative analysis of 245 family businesses
Summary
Businesses are an important part of the economies of emerging and developed countries alike They represent a socially significant phenomenon and contribute significantly to the creation of GDP (Prasetyo, 2016; Krošláková, 2013). Research into the specific characteristics of family businesses is a relatively new scientific discipline They are perceived as a fundamental driving force of global economic growth, prosperity, and stability of nations (Sharma, Chrisman, & Gersick, 2012). According to Csákné and Karmazin (2016), a review of family businesses’ financial characteristics can lead to a duality of family and commercial dimensions This duality is reflected in the financial decisions on the use of equity and debt financing, which reflects the business’s financial needs and the financial needs or means of the family. A full understanding of family business requires multi-faceted knowledge of economic, commercial, financial, organizational, psychological, entrepreneurial, managerial, and strategic areas (Ferramosca & Ghio, 2018, p. 14)
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