Are financing decisions of family-owned SMEs different? Empirical evidence using panel data

Abstract

This paper analyses if ownership structure is an important determinant of capital structure decisions, on the basis of two sub-samples of family-owned and non-family owned SMEs, and using panel data models. The results suggest that family ownership is an important determinant for: i) the variations of short and long-term debt stimulated by financial deficit; ii) the speed of adjustment of short and long-term debt towards the respective target levels; and iii) the relationships between determinants and short-term debt and long-term debt. In general, the capital structure decisions of family-owned SMEs are closer to what is forecast by trade-off theory than those of non-family owned SMEs, whereas the capital structure decisions of non-family owned SMEs are closer to the forecasts of pecking order theory than those of family-owned SMEs.

Does Family and Lone Founder Involvement Lead to Similar Indebtedness?

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What we know and what we should know about speed of capital structure adjustment: a retrospective using bibliometric and system thinking approach

“…The SMEs are found to rationally adjust to the optimal target ratio (Aybar-Arias et al , 2012). With regard to family control’s impact on the SMEs’ financial decisions towards reaching the target leverage, Serrasqueiro et al (2012) asserted that the costs could obstruct the adjustment process. Reasoning this obstruction, Serrasqueiro et al (2022) found that the SMEs stay away from the target ratio for a longer duration when faced with the cost of deviation or insolvency cost higher than the cost of adjustment or transaction cost.…”

Contemporary Financial Risk Management Perceptions and Practices of Small-Sized Chinese Businesses

“…This has a fundamental and ongoing input into "what businesses small businesses are in". Clearly, the results of interviews suggest that there is a huge gap between academic reasoning (e.g., Serrasqueiro et al, 2012;Irwin & Scott, 2010;Beck et al, 2008) and real practice with the importance of financial risk.…”