Family Control and Financing Decisions |
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Authors: | Ettore Croci John A Doukas Halit Gonenc |
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Institution: | 1. Università Cattolica del Sacro Cuore, Largo Gemelli, 1, 20123 Milan, ItalyE‐mail: ettore.croci@unicatt.it;2. Old Dominion University and Judge Business School, University of Cambridge, UKE‐mail: jdoukas@odu.edu;3. University of Groningen, Faculty of Economics and Business, P.O. Box 800, Groningen 9700 AV, NetherlandsE‐mail: h.gonenc@rug.nl |
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Abstract: | This study uses a comprehensive European dataset to investigate the role of family control in corporate financing decisions during the period 1998–2008. We find that family firms have a preference for debt financing, a non‐control‐diluting security, and are more reluctant than non‐family firms to raise capital through equity offerings. We also find that credit markets are prone to provide long‐term debt to family firms, indicating that they view their investment decisions as less risky. In fact, our empirical results demonstrate that family firms invest less than non‐family firms in high‐risk, research and development (R&D) projects, but not in low‐risk, fixed‐asset capital expenditure (CAPEX) projects, suggesting that fear of control loss in family firms deters risk‐taking. Overall, our findings reveal that the external financing (and investment) decisions of family firms are in greater (lesser) conflict with the interests of minority shareholders (bondholders). |
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Keywords: | family firms financing decisions equity issues debt issues capital structure G32 |
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