Conservatism: an explanation of the financial choices of the small and medium family enterprise

Abstract

The financial behavior of the family firm is a recurring topic in the literature. Hirigoyen‘s pioneer research (1984) reveals the specificity of the financial behaviors of industrial family medium-sized companies24 compared to those of the other categories of firms. This type of firms set out effective structures enabling them a better financial management because, on the one hand, they have a long term vision and, on the other hand, are not accountable for short-term results (Dreux, 1990), especially for unquoted firms. In addition, the desire to transmit the firm to the next generations would more encourage the effective management of capital (Gallo and Vilaseca, 1996). Precisely, the long-term horizons of the family firm make it possible to qualify its capital as patient financial capital (Reynolds, 1992). Indeed, this capital is invested for long periods without threat of liquidation contrary to ordinary financial capital which generally have a due limit corresponding to the end of investment (Dobrzynski, 1993). The firms having this type of capital would be able to pursue more creative and innovating strategies.