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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.
    2. Julian Franks & Colin Mayer & Paolo Volpin & Hannes F. Wagner, 2012. "The Life Cycle of Family Ownership: International Evidence," The Review of Financial Studies, Society for Financial Studies, vol. 25(6), pages 1675-1712.
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