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Founding Family Control and Capital Structure: The Risk of Loss of Control and the Aversion to Debt

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  • Chandra S. Mishra
  • Daniel L. Mcconaughy

Abstract

This paper tests the hypothesis that Founding Family Controlled Firms (FFCFs) are more averse to control risk than similar non-FFCFs and therefore avoid debt. Higher levels of debt increase the likelihood of bankruptcy and the level of control risk. We show that FFCFs use less debt; their choice of debt is more sensitive to conditions associated with control risk; and that leverage is not significantly related to managerial ownership in non-FFCFs, indicating that founding family control, not managerial ownership, matters in determining leverage.

Suggested Citation

  • Chandra S. Mishra & Daniel L. Mcconaughy, 1999. "Founding Family Control and Capital Structure: The Risk of Loss of Control and the Aversion to Debt," Entrepreneurship Theory and Practice, , vol. 23(4), pages 53-64, July.
    • Handle: RePEc:sae:entthe:v:23:y:1999:i:4:p:53-64
    DOI: 10.1177/104225879902300404
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