Control considerations, creditor monitoring, and the capital structure of family firms

Thomas Schmid

Journal of Banking & Finance, 2013, vol. 37, issue 2, 257-272

Abstract: In this paper, I analyze the motives moving founders and their families to influence the capital structure decision. For this, I complement detailed corporate governance information for Germany with data from other countries. The results for the German bank-based financial system contradict prior findings for other institutional environments. According to these results, family firms in Germany rely less heavily on debt than non-family firms. Less surprisingly, the opposite holds true for the international dataset. Different empirical tests indicate that this puzzling result can be explained by control considerations. Founders and their families use the capital structure to optimize their control over the firm. However, whether family firms rely more or less on debt depends on the level of creditor monitoring in an institutional environment. These findings emphasize that control considerations of major shareholders are important—although often overlooked—determinants of the capital structure.

Keywords: Capital structure; Family firms; Control considerations; Creditor monitoring; International evidence (search for similar items in EconPapers)
JEL-codes: G32 G34 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (45)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:37:y:2013:i:2:p:257-272

DOI: 10.1016/j.jbankfin.2012.08.026

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