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Availability of Credit to Family Businesses

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Author Info
 Bopaiah, Cavery
Abstract

The paper provides evidence that family ownership is associated with greater availability of credit. This may be because family-owned businesses are seen by lenders as having fewer moral hazard problems than non-family-owned businesses. One reason for this could be that family owned businesses, by definition, have a controlling share in the equity of the firm. Other factors considered important by lenders may be the managerial characteristics, and the relatively conservative investment choices of family-owned businesses. In spite of these advantages, family ownership is not associated with a reduction in premiums on the loans. The research also highlights differences between outside equity holders and debt-holders in their decision to invest in a firm. Equity holders are known to prefer separation of ownership and control, and the possibility of takeovers, as this could increase the value of the firm. Debt-holders, on the other hand, prefer arrangements that ensure continuity and stability. Copyright 1998 by Kluwer Academic Publishers

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Publisher Info
Article provided by Springer in its journal Small Business Economics.

Volume (Year): 11 (1998)
Issue (Month): 1 (August)
Pages: 75-86
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Handle: RePEc:kap:sbusec:v:11:y:1998:i:1:p:75-86

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  1. Siegel, Jordan & Oberholzer-Gee, Felix, 2007. "Expropriators or Turnaround Artists? The Role of Controlling Families in South Korea (1985-2003)," CEI Working Paper Series 2006-19, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  2. Maude Toussaint-Comeau & Robin Newberger & Jason Schmidt & Art Rolnick & Ron Feldman, 2003. "Credit availability in the Minneapolis-St. Paul Hmong community," Proceedings, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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