The capital structure choices of family firms

Abstract

Purpose – This paper aims to examine the determinants of capital structure of unlisted firms and how family governance-related factors impact on them. Design/methodology/approach – The authors analyze the relation between a set of capital structure determinants and leverage in a unique dataset of 3,006 family and non-family Italian medium-large firms (26,210 obs.), and a control sample of 2,730 small firms (14,780 obs.), using cross-section and panel procedures during 2001-2010. Findings – Capital structure choices of medium-large family firms are linked to balance-sheet variables not used in previous studies, i.e. net working capital and capital turnover, and are significantly affected by the need to maintain control and influence, a relevant dimension of family socioemotional wealth. Family firms are more levered than non-family firms, but the difference is economically and statistically significant only for medium-large companies. The presence of the family in active management increases leverage, as the family endowment in the firm is higher. Research limitations/implications – This research could be developed through an international comparison to check the influence of country-related regulatory issues and of national cultural aspects on family control and influence. Practical implications – The results can give public authorities important insights in order to facilitate firms funding specially in the current critical economic scenario and provide managers useful suggestions to support financial decisions. Originality/value – To the best of the authors' knowledge, this is the first paper to explore the financial choices of a large dataset of medium-large private firms in a bank-based economy.