Can Family Involvement Be a Substitute for Executive Inside Debt in Lowering the Cost of Bank Loans? A Behavioral Agency Perspective

Rong Ding, Mingzhi Liu, Yuan Wang and Zhenyu Wu

Review of Corporate Finance, 2022, vol. 2, issue 4, 819-860

Abstract: Using a sample of listed companies in the U.S. between 2007 and 2016, we explore the joint effects of executive inside debt (EID) and family involvement on the cost of bank loans. The empirical results indicate that the mitigating effect of EID on the cost of bank loans is less pronounced in family firms than in their non-family counterparts. We also document that (1) the mitigating effect of EID on the cost of bank loans is strengthened when a firm’s performance is lower than its aspiration level and (2) the moderating effect of family involvement is significant when firm performance is above its aspiration level. Collectively, our findings support the behavioral agency prediction that family involvement shapes firms’ risk-taking preference, which acts as a substitute for EID in decreasing the cost of debt.

Keywords: Family involvement; executive inside debt; cost of bank loan; aspiration level (search for similar items in EconPapers)
JEL-codes: G30 (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://dx.doi.org/10.1561/114.00000031 (application/xml)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:now:jnlrcf:114.00000031

Access Statistics for this article

More articles in Review of Corporate Finance from now publishers
Bibliographic data for series maintained by Lucy Wiseman ().