Are Family Firms More Levered? An Analysis of Family and Non-Family Firms

Abstract

This study analyzes the leverage policies of the family and non-family firms of eight East Asian Economies (Hong Kong, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, and Taiwan) by using combined data of 690 family and non-family firms with 3,224 firm–years over the period 2006–2010. This study has used an ordinary least squares (OLS) regression for analyzing the data for the first question, while for the second question, logit regression has been used as the dependent variable (a binary variable). Prior research on family and non-family firms has revealed that family firms issue less (high) debt than non-family firms. Our analysis on a sample of East Asian Economies discloses that family firms have significantly different leverage levels than non-family firms, but their signs are not consistent. On the contrary, when the owner works as CEO/Chairman or member of the Board of Directors, then the family firms issue less debt than the non-family firms. Besides that, this study adds a new question that has not been addressed in the prior studies. The new question has focused on the speed of leverage adjustment. It is found that family firms and non-family firms regarding their debt maturity structure (short-term debt and long-term debt), the speed of leverage adjustments, and their decision to issue securities (i.e., debt vs. equity) are not significantly different. This study concluded that though family firms have a strong influence on each economy, but in South-East Asian countries, leverage policies of the family firms are not much different than that of non-family firms.

Family ownership and capital structure: evidence from ASEAN countries

“…Accordingly, the average debt ratio (DR) of our sample is 20.79%, and the average short-term and long-term debt ratio (STDR and LTDR) are 11.51 and 9.21%, respectively. These figures are close to the statistics of capital structure in previous studies on ASEAN firms, where for example debt ratio is around 22% inHaider et al (2021) andHamid et al (2015). The average value of Family_firm is 0.5559, indicating that the number of family firms is slightly higher compared This Table presents the data description, definition, and summary statistics of all the variables.…”

“…Second, by focusing on the region of ASEAN, we add to the existing literature on family firms which is lack studies focusing on emerging markets and cross-country analyses. Driffield et al .’s (2007) and Haider et al .’s (2021) study Eastern Asian family firms in a cross-country context, but they assume that if a firm is a family firm in one year, the family firm status would remain the same for the whole investigated period. In fact, the ownership structure in these firms can change substantially over time (Carney and Child, 2013).…”

“…This is to avoid gaps in our data. Following Gonz alez et al (2013), Keasey et al (2015), and Haider et al (2021), we also exclude financial and utility firms from our sample because they are subject to specific accounting and tax regulations, which can likely affect their financing decisions.…”

“…The related literature has also provided evidence that the relationship between family ownership and capital structure varies from country to country (Ampenberger et al, 2013;Driffield et al, 2007;Haider et al, 2021), mostly due to the different levels of investor protection (Hansen and Block, 2020;Martins et al, 2020). For instance, in countries with low minority investor protection, family shareholders can expropriate minority shareholders' wealth to pursue their own interests (Croci et al, 2011), which renders costs of external equity more expensive in comparison with non-family peers, leading to higher leverage levels (Gottardo and Maria Moisello, 2014).…”

Corporate diversification and debt financing: Do family shareholders protect their control rights?

“…A clear consensus was required before making any strategic choices in a strong family culture, which limits FFs to a high debt position. This is common when the family members assume the position of chief executive officer or chairman of the board (Haider et al, 2021). Instead of investing in new businesses, FFs were more involved in investing in family generational welfare and wealth over the overall shareholders' wealth (Comino-Jurado et al, 2021).…”