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Family firm identity and capital structure decisions

Family firm identity and capital structure decisions PurposeThe purpose of this paper is to grasp the effect of familiness on capital structure decisions in family firms, as family firm identity may be an important source of competitive advantage due to its potential to moderate relationships with stakeholders such as banks.Design/methodology/approachThe paper uses panel data from 2010 to 2014, which combine financial and structural data on 691 large private German companies. The econometric approach is a random-effect and tobit panel regression using different dependent variables relating to debt.FindingsThe study reveals that family firms have significantly higher overall and long-term debt levels compared to their non-family counterparts. Contrary to the extant literature, tangibility is not significantly related to debt in the context of family firms and the hypothesized higher usage of trade credits by family-owned businesses could not be supported.Research limitations/implicationsFuture research can improve the measurement of familiness by changing from a dichotomous to a continuous variable, acknowledging that family businesses are not homogenous. This would also enable a different econometric approach.Practical implicationsA practical implication for family firms is to actively capitalize on their identity and thus, improving the way they present themselves towards different groups of stakeholders to mitigate information asymmetries and enhance trust.Originality/valueThe paper investigates large private family-owned businesses, applies multiple dependent variables, and uses a family firm specific theoretical framework, namely familiness, to explain the family’s influence on the business. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Family Business Management Emerald Publishing

Family firm identity and capital structure decisions

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
2043-6238
DOI
10.1108/JFBM-05-2017-0012
Publisher site
See Article on Publisher Site

Abstract

PurposeThe purpose of this paper is to grasp the effect of familiness on capital structure decisions in family firms, as family firm identity may be an important source of competitive advantage due to its potential to moderate relationships with stakeholders such as banks.Design/methodology/approachThe paper uses panel data from 2010 to 2014, which combine financial and structural data on 691 large private German companies. The econometric approach is a random-effect and tobit panel regression using different dependent variables relating to debt.FindingsThe study reveals that family firms have significantly higher overall and long-term debt levels compared to their non-family counterparts. Contrary to the extant literature, tangibility is not significantly related to debt in the context of family firms and the hypothesized higher usage of trade credits by family-owned businesses could not be supported.Research limitations/implicationsFuture research can improve the measurement of familiness by changing from a dichotomous to a continuous variable, acknowledging that family businesses are not homogenous. This would also enable a different econometric approach.Practical implicationsA practical implication for family firms is to actively capitalize on their identity and thus, improving the way they present themselves towards different groups of stakeholders to mitigate information asymmetries and enhance trust.Originality/valueThe paper investigates large private family-owned businesses, applies multiple dependent variables, and uses a family firm specific theoretical framework, namely familiness, to explain the family’s influence on the business.

Journal

Journal of Family Business ManagementEmerald Publishing

Published: Jul 10, 2017

References