Capital Structure Of Family Firms Research Articles

The role of firm life cycle on capital structure of family firms over non‐family firms: Empirical evidence from India

AbstractThis study attempts to identify and compare the critical determinants and the speed of adjustment to optimal capital structure across various stages of the firm life cycle (FLC). Signifying the attitude of family firms (FFs) owing to risk aversion and the need to preserve firm control, the study differentiates the debt policies of family and non‐family firms (NFFs) in an emerging economy. We use a target adjustment model and two‐step system generalised method of moments to analyse panel data on a sample of 1435 listed non‐financial firms spanning from 2013 to 2022. We find that compared to NFFs, FFs are inherently more indebted and adjust faster towards achieving optimal capital structure. Next, we find that firm's profitability, liquidity and tangibility are the major factors that significantly impact the quantity of debt across different stages of the FLC in both FFs and NFFs. Our results are robust to a battery of sensitivity tests. Our study suggests the significance of appropriate capital structure at different stages of the FLC.

The impact of family ownership and under-aspiration performance on a firm’s capital structure

Research on the capital structure of family firms has flourished in recent years, but the impact of performance aspiration and family ownership together on capital structure remains inadequately investigated. Therefore, the purpose of this study is to explore the impact of family ownership and under-aspiration performance and their interaction on capital structure. Panel data estimations were applied with a unique dataset of 3.857 observations from 387 public firms in Vietnam from 2010 to 2020 (134 family firms and 253 non-family firms). The results reveal that family ownership and under-aspiration performance each has a positive effect on capital structure. However, under-aspiration performance negatively moderates the positive effect of family ownership on capital structure. These findings contribute to a stream of studies on the capital structure of family firms by exploring the role of under-aspiration performance, as well as provide important implications for shareholders, managers and debtors in financial management.

Capital structure of family firms: the effect of debt and equity market timing

PurposeThis study aims to investigate how the timing behavior affects the capital structure decisions of South Asian family firms. A strand of literature is available based on the capital structure of firms in general but inconsistent with family businesses framework and not from market timing outlook. This study looks at the issues from the market timing perspectives of both equity and debt market timing.Design/methodology/approachThe sample of the study is the listed family firms of India, Pakistan and Bangladesh. The firm-level data are collected from Thomson Reuters' DataStream and the ownership data collected from the countries' stock exchanges and financial statements of the family firms.FindingsThe results show that there is strong support for the market timing in the family firms' capital structure. Moreover, the financial crisis of 2007–2009 surprisingly had a positive effect on the capital structure of South Asian family business.Originality/valueThis study looks at the issues from the market timing perspectives of both equity and debt market timing. It provides evidence for supporting the equity and debt market timing effect on the capital structure and financing decision of family firms. It also addresses the impact of the 2007–2009 financial crisis on the capital structure of family firms.

Capital Structure Determinants in Family Firms: An Empirical Analysis in Context of Crisis

The purpose of this paper is to investigate the capital structure of family firms in a context of crisis. Specifically, it aims to discover whether and how the determinants of their capital structure have a different impact on firms’ leverage before and during the recent global financial crisis. Considering the pecking order theory (POT), trade-off theory (TOT), and agency theory (AT), this study analyzes 1,502 Italian medium family firms comparing the pre-crisis (2005-2007) and crisis (2008-2010) periods. This research shows that that current liquidity, asset structure, and agency costs are the most important variables in influencing medium family firms' leverage, in both the pre-crisis and crisis periods. Moreover, during the crisis, agency costs increase and have a negative influence on the short-term leverage highlighting that crisis contingencies influence the agency-based effects on family firm's leverage. Furthermore, our findings highlight that a more exhaustive understanding of family firms’ capital structure can be achieved through the combined use of different theories.

Pecking Order and Trade-off Theory in Capital Structure Analysis of Family Firms in Indonesia

The purpose of this study has analyzed the determinants of policy decisions of the capital structure of family firms listed on the Indonesia Stock Exchange (IDX) in 2012-2016. The company's capital structure was measured by using debt to equity ratio (DER). Determinants of capital structure used include profitability (ROA), asset structure, growth (growth), firm size (size) and business risk (risk). This research was a quantitative research with a kind of causal research. Using a sample of 38 family companies in Indonesia listed on the Indonesia Stock Exchange (IDX). Hypotheses testing method of multiple linear regression. The result showed that ROA had a negative effect not significant to DER. The asset structure had a significant positive effect on DER, growth had no significant negative effect on DER, size had no significant positive effect on DER, and risk had a significant negative effect on DER. The findings research that the average family firm in Indonesia still uses the Pecking Order Theory in the application of capital structure. JEL Classification : G31, G32, G34 DOI : https://doi.org/10.26905/jkdp.v22i1.1793

The impact of family ownership on capital structure of firms: Exploring the role of zero-leverage, size, location and the global financial crisis

In this article, we investigate the influence of family ownership on firm leverage across different subgroups of family and non-family firms. In addition, we examine the influence of firm size, geographical location and the 2008 global financial crisis on the capital structure of family firms. In both cases, we study the probability of firms using debt and, conditional on its use, the proportion of debt issued. We find that family ownership affects both decisions positively, namely, when the firm is large or located in a metropolitan area. For small firms located outside metropolitan areas, there is no clear family ownership effect. We also find the 2008 crisis had a substantial, but diversified, impact on family firm leverage. On the one hand, all family firms were more prone to use debt after 2008; on the other, the proportion of debt held by levered family firms decreased for micro and small firms, but increased for large firms. Overall, the crisis effects on family firm leverage seem to be the result of both supply- and demand-side factors, with the former particularly affecting the availability of debt to micro and small firms.

IMPACT OF FAMILY OWNERSHIP ON FINANCING DECISIONS: A COMPARATIVE ANALYSIS OF COMPANIES LISTED AT THE KSE

The current study attempts to investigate debt and dividend policies under the umbrella of capital structure’s theories in both organizational types i.e. family owned business (FOB) and non-family owned business (NFOB). Two threshold points of ownership structure (25% & 50%) were used to distinguishing FOB from NFOB. A sample of 280 listed firms at the KSE was collected for the period 2002- 13.Generalized Method of Moments (GMM) was applied on panel data to estimate the coefficients of variables. The empirical results indicated the weak application of pecking order theory and higher payout ratio in family firms comparatively. The study provided explanation regarding speedier rebalancing the target capital structure of family firms due to easier access to debt and long term presence of the family in the firm. However, FOBs smooth dividends to lesser extent than their counterpart NFOBs indicate lower agency and information asymmetry problems in them. SECP as well as stock exchanges are advised to bring required changes in corporate laws to ensure lucid and verifiable disclosure regarding dividend policy in their reports, prospectus and websites etc

Sucesión y su relación con endeudamiento y desempeño en empresas familiares

In addition to making decisions about issues that affect all companies, family business must be able to adequately manage the company-family relationship through an examination of the dynamics that involve founders, successive generations, shareholders and the firm. It is therefore important to develop skills to identify and resolve difficulties raised by these relationships, and adopt strategies to promote growth, share power and control, seeking to create value for the company. Thus why this paper analyzes the effect of succession on the financial and capital structure of family firms. Based on a sample of Mexican public companies during the 2005-2011 period, we find that the effects of succession on financial performance varies depending on the generation that leads the company. We find that second-generation family businesses are characterized by greater risk aversion to indebtness and are more conservative compared with third-generation family business, characterized by a greater preference for financing through debt.

Do Family Firms have Better Access to External Finance during Crises?

AbstractManuscript TypeEmpiricalResearch Question/IssueWe explore whether family firms have easier access to debt during crises than nonfamily firms. We adapt the leverage equation from the corporate finance literature and estimate the differences in the leverages of family and nonfamily firms between expansion and crisis periods.Research Findings/InsightsThe capital structure of family firms is based less on external finance than that of nonfamily firms. Nevertheless, during crisis periods, family firms are less subject to credit restrictions than nonfamily firms and, thus, the impact of the lack of credit on their capital structure is less severe in the former than in the later.Theoretical/Academic ImplicationsWe provide a reliable test of the access of family firms to external finance in a market with severe financial constraints. A precise empirical definition of family firms contributes to the study of the differential characteristics of this group of firms.Practitioner/Policy ImplicationsThis paper shows the relevance of family firms in the economy under difficult financial conditions. The finding that lenders can be less reluctant to lend to family firms during a crisis encourages policies promoting a long‐term view of these firms and their control across generations. The results can also be useful at the time of designing policies related to the access of credit during expansion and crisis periods.

Control considerations, creditor monitoring, and the capital structure of family firms

In this paper, I analyze the motives moving founders and their families to influence the capital structure decision. For this, I complement detailed corporate governance information for Germany with data from other countries. The results for the German bank-based financial system contradict prior findings for other institutional environments. According to these results, family firms in Germany rely less heavily on debt than non-family firms. Less surprisingly, the opposite holds true for the international dataset. Different empirical tests indicate that this puzzling result can be explained by control considerations. Founders and their families use the capital structure to optimize their control over the firm. However, whether family firms rely more or less on debt depends on the level of creditor monitoring in an institutional environment. These findings emphasize that control considerations of major shareholders are important—although often overlooked—determinants of the capital structure.

Family firms and debt: Risk aversion versus risk of losing control

This study examines the effect of family management, ownership, and control on capital structure for 523 Colombian firms between 1996 and 2006. The study finds that debt levels tend to be lower for younger firms when the founder or one of his heirs acts as manager, but trends higher as the firm ages. When family involvement derives from direct and indirect ownership, the family–debt relationship is positive, consistent with the idea that external supervision accompanies higher debt levels and reduces the risk of losing control. When families are present on the board of directors (but are not in management), debt levels tend to be lower, suggesting that family directors are more risk-averse. The results stress the tradeoff between two distinct motivations that determine the capital structure of family firms: risk aversion pushes firms toward lower debt levels, but the need to finance growth without losing control makes family firms to prefer higher debt levels.

Family firms and debt: Risk aversion versus risk of losing control

This study examines the effect of family management, ownership, and control on capital structure for 523 listed and unlisted Colombian firms between 1996 and 2006 (5,094 firm-year observations). The study finds that when families are involved in management, debt levels tend to be lower for younger firms when the founder is still present or when heirs act as managers, but trends higher as the firm ages. When families’ involvement derives from direct and indirect ownership, the family/debt relationship is positive, consistent with the idea that external supervision accompanies higher debt levels and reduces the risk of losing control. When families are present on the board of directors (but are not in management), debt levels tend to be lower, suggesting that family directors are more risk-averse. The results stress the tradeoff between two distinct motivations that determine the capital structure of family firms: Risk aversion pushes firms toward lower debt levels, but the need to finance growth and the risk of losing control make family firms prefer higher debt levels.