THE ROLE OF FAMILY CONTROL IN DETERMINING THE CAPITAL STRUCTURE: EVIDENCE FROM NONFINANCIAL LISTED FIRMS

Imran Yousaf, Seyed Alireza Athari, Dervis Kirikkaleli, Arshad Hassan and Shoaib Ali
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Seyed Alireza Athari: Faculty of Economics and Administrative Sciences, Cyprus International University, Turkey

Ekonomski pregled, 2022, vol. 73, issue 3, 459-481

Abstract: This study aims to examine the effect of family control on the corporate financing decision of firms in Pakistan. This study uses the annual data of 100 non-financial firms listed at PSX for the period 2005-2012. To estimate the impact of family control on the corporate financing decision, we employ the ordinary least square (OLS) method. The findings of the univariate analysis show that a significant difference exists between family and nonfamily firms based on many characteristics of firms. Multivariate analysis results show that family firms maintain significantly high “total debt ratio” and “short-term debt ratio” compared to non-family firms. There are two reasons why family firms keep high debt ratios compared to non-family firms. First, family-owned firms do not want to dilute their ownership, and that is why they fulfill their major financing needs through debt instead of issuing new shares in the market. Second, family firms in Pakistan use extra cash flows for their private benefits. These findings reveal useful insights for investors, banks, regulators, and business families of Pakistan.

Keywords: Capital structure; Family ownership; Family firm; corporate financing decision; Dilute ownership (search for similar items in EconPapers)
JEL-codes: G12 G32 (search for similar items in EconPapers)
Date: 2022
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