Purpose – The purpose of this paper is to explain how family firm ownership and management control affect corporate capital structure strategy after controlling for other significant variables. The authors argue that, although family ownership has a positive effect on a firm’s leverage, family control through the CEO position and equity performance moderate its impact. Design/methodology/approach – Using a stratified random sample of 200 US public firms in the S & P Small-Cap 600 index from 1999 to 2007, this study uses random effect panel regressions to test the impact of family ownership on market value and book value debt ratios and the moderating effects of family control and equity performance after controlling for firm, industry, and macroeconomic variables. Findings – The initial panel regression suggests that family ownership is not related to debt ratios. However, further examination with controls for family CEO and equity performance shows that family ownership is positively related to market and book value debt ratios, but its effect is offset by family control through the CEO position and equity performance. Research limitations/implications – This study’s methodology can be extended to examine how family firm governance factors affect other firm behaviors such as investment, risk management, and CEO compensation. Practical implications – Practitioners should consider family ownership and management control factors when establishing financing strategy. The Small Business Administration and other government agencies should make similar considerations when setting policies. Originality/value – This paper separates ownership and management control factors to explain why family firms use more or less leverage. This study, thus, reconciles the mixed results of prior studies, which do not differentiate between these two governance factors.

Purpose – Small public family firms apply contracting differently given the peculiar motivations of founding families and the degree to which they monitor operations. The purpose of this paper is to examine the effects of family ownership, control, and CEO dividends on CEO incentive compensation. Design/methodology/approach – The sample consisted of 194 firms, covering about 40 percent of the relevant S&P SmallCap 600 firms. Employed were a logistic regression of the presence of incentive compensation plan and a panel regression of incentive compensation ratio against the family ownership, family CEO, CEO ownership, and dividend income variables as well as firm-specific and CEO-specific control variables. Findings – For 1,532 firm-year observations among S&P SmallCap600 index firms during 1999-2007, the authors found that family ownership and CEO dividend income ratio negatively related to the likelihood of an incentive compensation plan and to the ratio of equity-based compensation to total CEO pay. Additionally, the effect of CEO dividend income was limited to firms with outside CEOs. Practical implications – Boards of small capitalization firms should consider the incentive effects of CEO dividend income and CEO family membership when setting their compensation policies. Originality/value – S&P SmallCap600 index firms are unique because they are much smaller than those listed in the S&P 500 or the Fortune 500, and are subject to more family influence. SmallCap firms are comparable in size to the foreign firms previously researched but are still well covered by analysts, and benefit from audited financial statement variables, which include dividends and stock market returns.

This paper investigates CEO compensation structure and dividend policy of small publicly held family and nonfamily firms. We further study the differences between family firms with family CEOs and those with outsider CEOs. Unlike in other studies we do not find evidence of lower total compensation for CEOs at family firms when appropriate firm characteristics are accounted for. However, we do find that when the CEO is a family member, he/she receives lower salary and bonus compensation as compared to his/her counterpart. This cash compensation is further smaller for the family CEO when the company pays higher annual dividends. We find that family firms pay higher dividends and are more likely to increase or decrease dividends than other public firms but any such difference is confined to firms with non-family CEOs. Our results suggest that family CEOs rely on dividend income for a part of their stable income. Our results contradict Michaely and Roberts' (2012) inference that dividends are not wage channels for owner-managers.