Does Family Control Shape Corporate Capital Structure? An Empirical Analysisof Eurozone Firms

Abstract

[EN] This study investigates the relationship between family control and corporatecapital structure considering the dynamic nature of the debt policy and the ownership structureof family firms. Our results show that the sensitivity of debt to fluctuations in cash flow isless pronounced in family firms and highlight that family control increases the speed ofadjustment toward target debt. Four dimensions of the family business model explain theseresults: deviations of voting from cash flow rights, the presence of a second blockholder in thecompany, involvement of family members in management, and the generation in charge ofthe business. The weaker negative impact of cash flow on debt is driven by family firms with nocontrol-enhancing mechanisms, companies with active family participation in management andfamily businesses that are still controlled by the first generation. By contrast, the more severeagency conflicts between owners and creditors in family firms with a second blockholder leadto more pronounced pecking order behaviour. Furthermore, the higher flexibility in corporatedecision-making of family firms managed by the family and under the influence of the firstgeneration explains why family companies are able to rebalance their capital structure faster