Transparency and Financing Choices of Family Firms

Tai-Yuan Chen · Sudipto Dasgupta · Yangxin Yu

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Family Business Performance and Succession Corporate Finance and Governance Fiscal Policies and Political Economy

Abstract

Abstract While recent literature documents that U.S. family firms differ markedly from their nonfamily counterparts, there is a paucity of evidence on how these firms differ in terms of their cost of capital or financial structure. In this paper, we show that family and nonfamily firms differ in their debt maturity and leverage ratios in a manner consistent with the higher expropriation potential of family firms. Moreover, while more transparency causes both family and nonfamily firms to increase the maturity structure of their debt and reduce leverage ratios, the effects are stronger for family firms.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1984Corporate financing and investment decisions when firms have information that investors do not have 1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1997A Survey of Corporate Governance 2001Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature 1985The Structure of Corporate Ownership: Causes and Consequences 2000The separation of ownership and control in East Asian Corporations 2005How do family ownership, control and management affect firm value?

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