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Family ownership, financing constraints and investment decisions

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  • Christian Andres

Abstract

This article provides an empirical answer to the question of how the unique incentives of founding families influence investment decisions. Contrary to theoretical considerations, the results indicate that family firms are not more susceptible to external financing constraints. When compared to companies of similar size and dividend payout ratio, the investment outlays of family firms are consistently less sensitive to internal cash flows. Family businesses are more responsive to their investment opportunities and seem to invest irrespective of cash flow availability. The findings suggest that founding family ownership is associated with lower agency costs and can help to diminish information asymmetries with external suppliers of finance.

Suggested Citation

  • Christian Andres, 2011. "Family ownership, financing constraints and investment decisions," Applied Financial Economics, Taylor & Francis Journals, vol. 21(22), pages 1641-1659.
  • Handle: RePEc:taf:apfiec:v:21:y:2011:i:22:p:1641-1659
    DOI: 10.1080/09603107.2011.589805
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    References listed on IDEAS

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    1. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
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    Citations

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    Cited by:

    1. Marco Cucculelli & Valentina Peruzzi & Alberto Zazzaro, 2016. "Relational capital in lending relationships: Evidence from European family firms," CERBE Working Papers wpC12, CERBE Center for Relationship Banking and Economics.
    2. Dorothea Schäfer & Andreas Stephan & Jenniffer Solórzano Mosquera, 2017. "Family ownership: does it matter for funding and success of corporate innovations?," Small Business Economics, Springer, vol. 48(4), pages 931-951, April.
    3. Connelly, J. Thomas, 2016. "Investment policy at family firms: Evidence from Thailand," Journal of Economics and Business, Elsevier, vol. 83(C), pages 91-122.
    4. Pindado, Julio & Requejo, Ignacio & de la Torre, Chabela, 2014. "Family control, expropriation, and investor protection: A panel data analysis of Western European corporations," Journal of Empirical Finance, Elsevier, vol. 27(C), pages 58-74.
    5. repec:mth:ber888:v:7:y:2017:i:1:p:308-322 is not listed on IDEAS
    6. Valentina Peruzzi, 2015. "Family firms' access to bank lending: Evidence from Italy," Economics Bulletin, AccessEcon, vol. 35(3), pages 1874-1885.
    7. Alessandra Tognazzo & Federica Destro & Paolo Gubitta, 2012. "Patenting in family firms," "Marco Fanno" Working Papers 0155, Dipartimento di Scienze Economiche "Marco Fanno".
    8. Marco Cucculelli & Valentina Peruzzi & Alberto Zazzaro, 2016. "Relational capital in lending relationships: Evidence from European family firms," CERBE Working Papers wpC12, CERBE Center for Relationship Banking and Economics.
    9. Caprio, Lorenzo & Croci, Ettore & Del Giudice, Alfonso, 2011. "Ownership structure, family control, and acquisition decisions," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1636-1657.
    10. repec:taf:applec:v:49:y:2017:i:43:p:4378-4393 is not listed on IDEAS
    11. Adhikari, Hari P. & Sutton, Ninon K., 2016. "All in the family: The effect of family ownership on acquisition performance," Journal of Economics and Business, Elsevier, vol. 88(C), pages 65-78.
    12. Pierluigi Murro & Valentina Peruzzi, 2017. "Family firms and access to credit. Is family ownership beneficial?," CERBE Working Papers wpC23, CERBE Center for Relationship Banking and Economics.
    13. Valentina Peruzzi, 2017. "Does family ownership structure affect investment-cash flow sensitivity? Evidence from Italian SMEs," Applied Economics, Taylor & Francis Journals, vol. 49(43), pages 4378-4393, September.

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