Family control and cost of debt: Evidence from China

Gao, Hao; He, Jing; Li, Yong; Qu, Yuanyu

doi:10.1016/j.pacfin.2020.101286

Cited by 31 publications

(23 citation statements)

References 52 publications

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“…Control-enhancing mechanisms such as pyramids or dual-class shares increase agency conflicts with both minority shareholders and creditors (Pindado, Requejo, & de La Torre, 2015). These agency conflicts should also impact financing costs and result in higher required premiums for capital provision (Boubakri & Ghouma, 2010;Gao et al, 2020;Lin, Ma, Malatesta, & Xuan, 2011).…”

Section: Discussionmentioning

confidence: 99%

“…In countries with weak creditor rights, firm owners could invest debt money in overly risky projects and capture the gains in case of success, while not bearing the costs in the case of failure (Jensen & Meckling, 1976). Fearing the risk of being expropriated, creditors require consequently higher collaterals or premiums (Boubakri & Ghouma, 2010;Gao, He, Li, & Qu, 2020). In countries with strong creditor rights, creditors have more influence on the usage of provided credits, more monitoring possibilities, and stronger rights in the case of default.…”

Section: The Strength Of Creditor Rights As a Moderating Factormentioning

confidence: 99%

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Public family firms and capital structure: A meta‐analysis

Hansen

Block

2021

Corporate Governance

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Research Question/Issue: In this study, we examine the impact of family firm status on publicly listed firms' leverage ratios. Furthermore, we investigate the moderating role of a country's institutional setting, especially its shareholder and creditor rights, on this relationship.Research Findings/Insights: Conducting a meta-analysis on 869 effect sizes from 613 studies, we find an overall slightly negative but significant relationship between family firm status and leverage. Our results reveal a large amount of heterogeneity and considerable mean effect size differences across the 48 countries included in the study. The results of our meta-regression analysis reveal significant moderating effects of shareholder and creditor rights on family firms' capital structure decisions.Whereas stronger shareholder rights have a positive impact on family firm leverage, stronger creditor rights have a negative impact.Theoretical/Academic Implications: Our study combines the two dominating and competing views on family firm leverage. On the one hand, the overall lower leverage ratio of family firms confirms the risk-aversion view of family firms. On the other hand, control considerations also have a significant impact on leverage ratios, as family firms adjust their capital structure dependent on shareholder and creditor rights in their home country. Our study highlights the importance of the institutional setting on firms' financing patterns.Practitioner/Policy Implications: The results suggest a significant impact of a country's institutional setting in general, and its strength on shareholder and creditor rights in particular, on family firms' capital structure decisions. Control considerations result in a strategic use of debt financing that ensures the owner family's dominant position in the firm and prevents potentially harmful conflicts with minority shareholders or creditors.

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Section: Discussionmentioning

confidence: 99%

Section: The Strength Of Creditor Rights As a Moderating Factormentioning

confidence: 99%

Public family firms and capital structure: A meta‐analysis

Hansen

Block

2021

Corporate Governance

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“…They find that family firms suffer a higher cost of debt compared to nonfamily firms. Similarly, Gao et al (2020) find that Chinese listed family firms have higher bond-yield spread due to risk of expropriation and financial reporting quality. Boubakri and Ghouma (2010) provide similar results in an international context.…”

Section: Introductionmentioning

confidence: 92%

Family firms and the cost of borrowing: empirical evidence from East Asia

Godlewski

2022

Research in International Business and Finance

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“…Both risk-shifting and underinvestment give rise to the agency cost of debt [3,4]. There is an immense literature on the agency cost of debt, highlighting the importance of this branch of the literature [15][16][17][18][19][20][44][45][46].…”

Section: The Agency Cost Of Debt (Agency Conflict Between Shareholders and Creditors)mentioning

confidence: 99%

Do hostile takeover threats matter? Evidence from credit ratings

2022

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Exploiting a novel measure of takeover vulnerability mainly based on state legislations, we explore the effect of hostile takeover threats on credit ratings. Our results reveal that companies with more takeover exposure are assigned significantly better credit ratings. In particular, a rise in takeover vulnerability by one standard deviation results in an improvement in credit ratings by 7.89%. Our findings are consistent with the view that the disciplinary mechanism associated with the takeover market mitigates agency problems and ultimately raises firm value. Further analysis corroborates our conclusion, including propensity score matching, entropy balancing, and an instrumental-variable analysis. As our proxy for takeover susceptibility is plausibly exogenous, our results are more likely to show a causal effect.

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Family control and cost of debt: Evidence from China

Cited by 31 publications

References 52 publications

Public family firms and capital structure: A meta‐analysis

Public family firms and capital structure: A meta‐analysis

Family firms and the cost of borrowing: empirical evidence from East Asia

Do hostile takeover threats matter? Evidence from credit ratings

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