Family ownership, financing constraints and investment decisions

Christian Andrés

122 citations0/0 files storedApplied Financial Economics

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Corporate Finance and Governance Working Capital and Financial Performance Family Business Performance and Succession

Abstract

This article provides an empirical answer to the question of how the unique incentives of founding families influence investment decisions. Contrary to theoretical considerations, the results indicate that family firms are not more susceptible to external financing constraints. When compared to companies of similar size and dividend payout ratio, the investment outlays of family firms are consistently less sensitive to internal cash flows. Family businesses are more responsive to their investment opportunities and seem to invest irrespective of cash flow availability. The findings suggest that founding family ownership is associated with lower agency costs and can help to diminish information asymmetries with external suppliers of finance.

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References

1991Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations 1984Corporate financing and investment decisions when firms have information that investors do not have 1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1958The Cost of Capital, Corporation Finance and the Theory of Investment 1981Credit Rationing in Markets with Imperfect Information 2019American Economic Review 1996Agency costs of free cash flow, corporate finance, and takeovers 1981Biases in Dynamic Models with Fixed Effects

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