Family involvement and new venture debt financing

Chua, Jess H.; Chrisman, James J.; Kellermanns, Franz W.; Wu, Zhenyu

doi:10.1016/j.jbusvent.2009.11.002

Cited by 217 publications

(199 citation statements)

References 62 publications

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“…Second, family firms represent a unique class of shareholders with undiversified portfolios , which makes them less likely to invest in risky projects (Naldi et al, 2007); thus, bondholders will demand lower rents than from non-family firms, which are typically held by more diversified shareholders. Third, the reputation of the family and the ability to borrow (relational) social capital (Du et al, 2013) through family involvement (Chua et al, 2011) can also lead, respectively, to a lower cost of debt and improved access to debt financing.…”

Section: Family Firms and The Willingness To Dilute Controlmentioning

confidence: 99%

Young family firms: Financing decisions and the willingness to dilute control

Keasey

Martínez

Pindado

2015

Journal of Corporate Finance

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We study the relationship between leverage and the willingness of listed family firms to dilute control, proxied by the ownership of the main shareholder. We find that the main owner's stake positively impacts on leverage and that this impact is stronger when the business is a young family firm. Furthermore, the life cycle matters when analyzing this relationship. These results allow us to argue that owners with a greater stake prefer to raise finance via debt rather than dilute their position via equity, and that family firms face a trade-off between their control risk aversion and the need for external financing.

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Section: Family Firms and The Willingness To Dilute Controlmentioning

confidence: 99%

Young family firms: Financing decisions and the willingness to dilute control

Keasey

Martínez

Pindado

2015

Journal of Corporate Finance

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“…The use of the system generalized method of moments estimator, in contrast to an ordinary least square estimator, allows us to mitigate these two problems by using instrumental variables and the integration of individual unobserved characteristics in the estimation strategy. Chua et al (2011) find that family involvement acts as a proxy for social capital that improves relationships with lenders and third party guarantors, thus contributing to increase the amount of debt raised by the venture. Extending their work to the public firm domain, in later stages of the firm life cycle, family involvement continues to garner lenient debt covenants.…”

Section: Discussionmentioning

confidence: 93%

“…Family firms have agency problems between shareholders and managers (Agency Problem 1), family shareholders and non-family shareholders (Agency Problem 2), shareholders and creditors (Agency Problem 3), and family shareholders and family non-shareholders (Agency Problem 4) (Villalonga et al, 2015). Agency Problem 3, proposed by Jensen and Meckling (1976), Myers (1977) and Smith and Warner (1979), is one of the less-discussed agency problems in the family firm literature (for exceptions, see Anderson et al, 2003;Boubakri & Ghouma, 2010;Chua, Chrisman, Kellermanns, & Wu, 2011).…”

Section: Theoretical Development and Hypothesesmentioning

confidence: 99%

Pound of Flesh? Debt Contract Strictness and Family Firms

Hillier¹,

Martínez

Patel

et al. 2017

Entrepreneurship Theory and Practice

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While past work finds support for both higher and lower cost of debt among family firms, whether lower shareholder-creditor agency conflicts in family firms translate into greater exante contracting efficiency (i.e., lower debt contract strictness) remains unexplored. Drawing on a shareholder-creditor agency framework and costly contracting theory, creditors, expecting firm value maximization rather than shareholder value maximization from family firms, may offer less strict debt contracts to increase contracting efficiency. We find in a sample of 716 publicly traded US firms (2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)) that family firms have less strict debt contracts, which are even less strict when family firms have higher asset tangibility. Although increases in R&D investments could lead to more pronounced shareholder-creditor agency conflicts, given family firms' preferences for lower risk and growth, debt contract strictness among family firms is not positively associated with higher R&D intensity.

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“…Moreover, provision of financial means by family usually presumes less rigid conditions compared to other possible financial capital sources, thus giving a young entrepreneur more freedom in her actions (Bygrave et al 2003;. Additionally, family financial support creates a platform that allows attracting alternative investment sources as the business grows (Chua et al 2011). This is especially important in the capital-intensive industries as conducting business in such conditions requires large investments on each and every stage of its development.…”

Section: Hypothesis 1 the Level Of Human Capital Development Is Posimentioning

confidence: 99%

Industry Choice by Young Entrepreneurs in Different Country Settings: The Role of Human and Financial Capital

Knatko

Shirokova

Bogatyreva

2016

Journal of Business Economics and Management

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Entrepreneurial entry happens as a consequence of a general choice of an individual to become an entrepreneur. While most entrepreneurial entry studies rarely consider an entry into a particular industry to be an aspect of entrepreneurial decision making process, we address this issue taking into account individual, industrial, and country specific attributes. Using data from the Global University Entrepreneurial Spirit Students' Survey (2013-2014) on young and active entrepreneurs and extending it with objective indicators derived from World Bank, Global Entrepreneurship Monitor, and International Property Rights Index datasets, we investigate how various factors influence entrepreneurial industry choice on an aggregated level of industrial typology: knowledge-intensive and capital-intensive industries. Drawing on the RBV and contingency approach, we link an industry choice with the level of human capital development and an access to financial capital and test for possible countryspecific moderation effects. Our findings indicate that both types of capital have a significant impact on industry choice by young nascent entrepreneur. Our results also suggest that specific country environment serves as a moderator in this relationship. Thus, our study contributes to entrepreneurial entry research stream extending the understanding of entrepreneurial entry decision making nuances related to individual access to resources and both industry-and country-level contingencies.

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Family involvement and new venture debt financing

Cited by 217 publications

References 62 publications

Young family firms: Financing decisions and the willingness to dilute control

Young family firms: Financing decisions and the willingness to dilute control

Pound of Flesh? Debt Contract Strictness and Family Firms

Industry Choice by Young Entrepreneurs in Different Country Settings: The Role of Human and Financial Capital

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