Family Control and Financing Decisions


  • We are grateful to three anonymous referees, Lorenzo Caprio, Douglas Cumming, Mara Faccio, Julian Franks, Abe de Jong, Gianfranco Forte, Kim Luchtenberg, Ignacio Requejo, Silvia Rigamonti, Henk von Eije, Daniel Wolfenzon, and seminar participants at Durham University, the University of Groningen, EFM2010 Symposium and EFMA2010 meetings for their comments and suggestions. All remaining errors are ours.


This study uses a comprehensive European dataset to investigate the role of family control in corporate financing decisions during the period 1998–2008. We find that family firms have a preference for debt financing, a non-control-diluting security, and are more reluctant than non-family firms to raise capital through equity offerings. We also find that credit markets are prone to provide long-term debt to family firms, indicating that they view their investment decisions as less risky. In fact, our empirical results demonstrate that family firms invest less than non-family firms in high-risk, research and development (R&D) projects, but not in low-risk, fixed-asset capital expenditure (CAPEX) projects, suggesting that fear of control loss in family firms deters risk-taking. Overall, our findings reveal that the external financing (and investment) decisions of family firms are in greater (lesser) conflict with the interests of minority shareholders (bondholders).