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Young family firms: Financing decisions and the willingness to dilute control

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  • Keasey, Kevin
  • Martinez, Beatriz
  • Pindado, Julio

Abstract

We study the relationship between leverage and the willingness of listed family firms to dilute control, proxied by the ownership of the main shareholder. We find that the main owner's stake positively impacts on leverage and that this impact is stronger when the business is a young family firm. Furthermore, the life cycle matters when analyzing this relationship. These results allow us to argue that owners with a greater stake prefer to raise finance via debt rather than dilute their position via equity, and that young family firms face a trade-off between their control risk aversion and the need for external financing.

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  • Keasey, Kevin & Martinez, Beatriz & Pindado, Julio, 2015. "Young family firms: Financing decisions and the willingness to dilute control," Journal of Corporate Finance, Elsevier, vol. 34(C), pages 47-63.
  • Handle: RePEc:eee:corfin:v:34:y:2015:i:c:p:47-63
    DOI: 10.1016/j.jcorpfin.2015.07.014
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    Keywords

    Young family firm; Willingness to dilute control; Life-cycle stages; Financing behavior;

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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