Capital Structure Decisions in Family Firms - Empirical Evidence from a Bank-Based Economy

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. 2 Capital structure decisions in family firms -empirical evidence from a bankbased economy Terms of use: Documents in Abstract:This study examines how family firm characteristics affect capital structure decisions. In our analysis we disentangle the influence of three distinct components of a family firm: ownership, supervisory and management board activities by the founding family. Thereby, we use a unique panel dataset of 660 publicly listed companies (5,135 firm years) in the broadest German stock index CDAX from 1995 to 2006. This paper is motivated by hitherto inconclusive empirical findings on capital structure decisions in family firms from AngloSaxon countries. We provide new evidence for a bank-based economy. In this sense, Germany provides a very fruitful research environment as it (i) traditionally has a bank-based financial system and (ii) family firms are considered to be the backbone of the economy.We find that family firms have significantly lower leverage ratios than non-family firms, independent of the definition of leverage applied. Among the three dimensions of a family firm, management board involvement by the founding family has a consistently negative influence on leverage across all our models. In contrast, the influence of ownership and supervisory board representation is insignificant in almost all of our models. In line with agency theory, we can show that the leverage level is the lowest if the founding family is simultaneously a large shareholder with monitoring incentives and involved in firm management with convergence-of-interest effects. Finally, we detect that the presence of a founder CEO in firm management has a significant negative effect on the leverage ratio. Our results prove to be stable against a battery of robustness tests including a matching estimator technique to demonstrate causal effects. JEL Classification: G 32, G 34

Ownership Dispersion and Capital Structures in Family Firms: A Study of Closed Medium-sized Enterprises

“…These results are statistically significant. Another study confirming the lower leverage ratios is conducted by Ampengerger et. al (2009) who explore the situation of German family firms.…”

Is Relationship Lending Still a Mixed Blessing? A Review of Advantages and Disadvantages for Lenders and Borrowers

“…Analysing the papers composing our review, we notice that the adoption of relationship lending could be subject to differences in the institutional setting among countries. In countries like Continental Europe, stock markets are underdeveloped compared to Anglo-Saxon economies, firms rely heavily on bank lending and the firm ownership structure is heavily concentrated (La Porta et al, 1998;Ampenberger et al, 2013). Based on this distinction, it seems that relationship lending should be preferred in bank-based economies.…”

When do family firms consider issuing external equity? Understanding the contingent role of families’ need for control

“…Another important difference that might be worth looking at is whether the fact that the family firm is located in a bank-based or market-based economy might influence a family firm's financial decisions. Studies that focused on capital structure decisions of family firms in a bank-based economy showed that the level of leverage is the lowest if the founding family is both a large shareholder and present in the management board at the same time, which is similar to studies in market-based economies (Ampenberger, Schmid, Achleitner, and Kaserer 2013). Whether the location of a family firm in a bank-based or market-based economy would affect its use of external equity remains to be seen.…”