Founding Family Control and Capital Structure: The Risk of Loss of Control and the Aversion to Debt

Chandra S. Mishra and Daniel L. Mcconaughy

Entrepreneurship Theory and Practice, 1999, vol. 23, issue 4, 53-64

Abstract: This paper tests the hypothesis that Founding Family Controlled Firms (FFCFs) are more averse to control risk than similar non-FFCFs and therefore avoid debt. Higher levels of debt increase the likelihood of bankruptcy and the level of control risk. We show that FFCFs use less debt; their choice of debt is more sensitive to conditions associated with control risk; and that leverage is not significantly related to managerial ownership in non-FFCFs, indicating that founding family control, not managerial ownership, matters in determining leverage.

Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:sae:entthe:v:23:y:1999:i:4:p:53-64

DOI: 10.1177/104225879902300404

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