Advertisement

Review of Managerial Science

, Volume 7, Issue 3, pp 247–275 | Cite as

Capital structure decisions in family firms: empirical evidence from a bank-based economy

  • Markus Ampenberger
  • Thomas Schmid
  • Ann-Kristin Achleitner
  • Christoph Kaserer
Original Paper

Abstract

This paper analyzes the question if and how founding families influence the capital structure decision of their firms. By using a unique, partially hand-collected panel dataset of 660 listed German companies (5,135 firm years) over the period 1995–2006, we come up with the following results: German family firms have significantly lower leverage ratios than non-family firms. With respect to the question how families influence the capital structure of their firms, we can show that the family impact is mostly driven via management involvement. In this context, we also detect that the presence of a founder CEO has a strong negative effect on the leverage ratio. Our results prove to be stable against a battery of robustness tests, including the influence of other types of blockholders and the firms’ life cycle. Moreover, we use a propensity-score based matching estimator to alleviate concerns of reverse causality. Overall, our study suggests a strong, negative and causal relationship between family firm characteristics (especially family management) and the level of leverage.

Keywords

Family firms Capital structure Leverage Agency conflicts 

JEL Classification

G32 G34 

Notes

Acknowledgments

We thank Andrew Ellul, Jana Fidrmuc, Randall Morck, Paolo Rodriguez, two anonymous referees and seminar participants at the Corporate Governance Workshop 2009 in Copenhagen, the 5th EIASM Workshop on Family Firms Management Research 2009 in Hasselt, the European Finance Association 2009 annual meeting in Bergen and the German Finance Association 2009 annual meeting in Frankfurt for their helpful comments and suggestions.

References

  1. Adams R, Almeida H, Ferreira D (2005) Powerful CEOs and their impact on corporate performance. Rev Financ Stud 18(4):1403–1432CrossRefGoogle Scholar
  2. Anderson RC, Mansi SA, Reeb DM (2003) Founding family ownership and the agency cost of debt. J Financ Econ 68(2):263–285CrossRefGoogle Scholar
  3. Anderson RC, Reeb DM (2003a) Founding-family ownership and firm performance: evidence from the S&P 500. J Finance 58(3):1301–1328CrossRefGoogle Scholar
  4. Anderson RC, Reeb DM (2003b) Founding-family ownership, corporate diversification and firm leverage. J Law Econ 46(2):653–680CrossRefGoogle Scholar
  5. Andres C (2008) Large shareholders and firm performance: an empirical examination of founding-family ownership. J Corporate Finance 14(4):431–445CrossRefGoogle Scholar
  6. Angrist JD (1998) Estimating the labor market impact of voluntary military service using social security data on military applicants. Econometrica 66(2):249–288CrossRefGoogle Scholar
  7. Antoniou A, Guney Y, Paudyal K (2008) The determinants of capital structure: capital market-oriented versus bank-oriented institutions. J Financ Quantitat Anal 43(1):59–92CrossRefGoogle Scholar
  8. Baker HK, Powell GE, Veit ET (2002) Revisiting the dividend puzzle: do all of the pieces now fit? Rev Financ Econ 11(4):241–261CrossRefGoogle Scholar
  9. Bayless M, Chaplinsky S (1996) Is there a window of opportunity for seasoned equity issuance? J Finance 51(1):253–278CrossRefGoogle Scholar
  10. Berger PG, Ofek E, Yermack DL (1997) Managerial entrenchment and capital structure decisions. J Finance 52(4):1411–1438CrossRefGoogle Scholar
  11. Bertrand M, Johnson S, Samphantharak K, Schoar A (2008) Mixing family with business: a study of Thai business groups and the families behind them. J Financ Econ 88(3):466–498CrossRefGoogle Scholar
  12. Bertrand M, Mullainathan S (2003) Enjoying the quiet life? Corporate governance and managerial preferences. J Polit Econ 111(5):1043–1075CrossRefGoogle Scholar
  13. Block JH (2011) R&D-investments in family and founder firms: an agency perspective. J Bus Ventur (forthcoming)Google Scholar
  14. Boot A (2000) Relationship banking: what do we know? J Financ Intermediat 9(1):7–19CrossRefGoogle Scholar
  15. Brunner A, Krahnen J (2008) Multiple lenders and corporate distress: evidence from debt restructuring. Rev Econ Stud 75(2):415–442CrossRefGoogle Scholar
  16. Casson M (1999) The economics of the family firm. Scand Econ Hist Rev 47(1): 10–23CrossRefGoogle Scholar
  17. Chami R (1999) What’s different about family businesses? Working Paper, University of Notre DameGoogle Scholar
  18. Claessens S, Djankov S, Fan JPH, Lang LHP (2002) Disentangling the incentive and entrenchment effects of large shareholdings. J Finance 57(6):2741–2771CrossRefGoogle Scholar
  19. da Silva CL, Goergen M, Renneboog L (2004) Dividend policy and corporate governance. Oxford University Press, OxfordCrossRefGoogle Scholar
  20. Davydenko S, Franks J (2008) Do bankruptcy codes matter? J Finance 63(2):565–608CrossRefGoogle Scholar
  21. Ellul A (2009) Control motivations and capital structure decision. Working Paper, Indiana University, March 2009Google Scholar
  22. Elsas R, Florysiak D (2008) Empirical capital structure research: new ideas, recent evidence, and methodological issues. Zeitschrift für Betriebswirtschaft Nr. 6:39–71Google Scholar
  23. Elsas R, Krahnen JP (2004) Universal banks and relationships with firms. In: Krahnen JP, Schmidt RH (eds) The German financial system. Oxford University Press, Oxford, pp 197–232CrossRefGoogle Scholar
  24. Faccio M, Lang LH (2002) The ultimate ownership of Western European corporations. J Financ Econ 65(3):365–395CrossRefGoogle Scholar
  25. Fahlenbrach R, Stulz RM (2009) Managerial ownership dynamics and firm value. J Financ Econ 92(3):342–361CrossRefGoogle Scholar
  26. Fama EF, French KR (2001) Disappearing dividends: changing firm characteristics or lower propensity to pay? J Financ Econ 60(1):3–43CrossRefGoogle Scholar
  27. Fama EF, French KR (2004) The capital asset pricing model: theory and evidence. J Econ Perspect 18(3):25–46CrossRefGoogle Scholar
  28. Fohlin C (2007) The history of corporate ownership and control in Germany. In: Morck RKA (ed) A history of corporate governance around the world. The University of Chicago Press, Chicago, pp 223–281Google Scholar
  29. Frank MZ, Goyal VK (2009) Capital structure decisions: which factors are reliably important? Financ Manage 38(1):1–37CrossRefGoogle Scholar
  30. Franks JR, Mayer C, Volpin PF, Wagner HF (2009) The life cycle of family ownership: international evidence. Working Paper, London Business SchoolGoogle Scholar
  31. Gomez-Mejia LR, Makri M, Kintana ML (2010) Diversification decisions in family-controlled firms. J Manage Stud 47(2):223–252CrossRefGoogle Scholar
  32. Gorton G, Schmid FA (2000) Universal banking and the performance of German firms. J Financ Econ 58(1/2):29–80CrossRefGoogle Scholar
  33. Greenbaum S, Thakor A (1995) Contemporary financial intermediation. Dryden Press, Fort WorthGoogle Scholar
  34. Gugler K (2003) Corporate governance, dividend payout policy, and the interrelation between dividends, R&D, and capital investment. J Bank Finance 27(7):1297–1321CrossRefGoogle Scholar
  35. Harris M, Raviv A (1988) Corporate governance: voting rights and majority rules. J Financ Econ 20(1/2):203–235CrossRefGoogle Scholar
  36. Heckman J, Ichimura H, Petra T (1997) Matching as an econometric evaluation estimator. Rev Econ Stud 64(4):605–654CrossRefGoogle Scholar
  37. Hovakimian A, Opler T, Titman S (2009) The debt-equity choice. J Financ Quantitat Anal 36(1):1–24CrossRefGoogle Scholar
  38. Jensen MC, Meckling WH (1976) Theory of the firm: managerial behavior, agency costs and ownership structure. J Financ Econ 3(4):305–360CrossRefGoogle Scholar
  39. Johnson W, Magee R, Nagarajan N, Newman H (1985) An analysis of the stock price reaction to sudden executive deaths. J Account Econ 7:151–174CrossRefGoogle Scholar
  40. Jostarndt P, Sautner Z (2010) Out-of-court restructuring versus formal bankruptcy in a non-interventionist bankruptcy setting. Rev Finance 14(4):623–668CrossRefGoogle Scholar
  41. Julio B, Ikenberry D (2004) Reappearing dividends. J Appl Corporate Finance 16(4):89–100CrossRefGoogle Scholar
  42. King MR, Santor E (2008) Family values: ownership structure, performance and capital structure of Canadian firms. J Bank Finance 32(11):2423–2432CrossRefGoogle Scholar
  43. Klasa S (2007) Why do controlling families of public firms sell their remaining ownership stake? J Financ Quantitat Anal 42(2):339–367CrossRefGoogle Scholar
  44. La Porta R, Lopez-de Silanes F, Shleifer A (1999) Corporate ownership around the world. J Finance 54(2):471–517CrossRefGoogle Scholar
  45. La Porta R, Lopez-de Silanes F, Shleifer A, Vishny RW (1998) Law and finance. J Polit Econ 106(6):1113–1155CrossRefGoogle Scholar
  46. Lemmon ML, Roberts MR, Zender JF (2008) Back to the beginning: persistence and the cross-section of corporate capital structure. J Finance 63(4):1575–1608CrossRefGoogle Scholar
  47. Lowry M, Schwert WG (2002) IPO market cycles: bubbles or sequential learning? J Finance 57(3):1171–1200CrossRefGoogle Scholar
  48. Margaritis D, Psillaki M (2010) Capital structure, equity ownership and firm performance. J Bank Finance 34:621–632CrossRefGoogle Scholar
  49. Miller D, Le Breton-Miller I, Lester RH (2011) Family and lone founder ownership and strategic behaviour: social context, identity, and institutional logics. J Manage Stud 48(1):1–25CrossRefGoogle Scholar
  50. Miller D, Le Breton-Miller I, Lester RH, Cannella AA (2007) Are family firms really superior performers? J Corporate Finance 13(5):829–858CrossRefGoogle Scholar
  51. Mishra CS, McConaughy DL (1999) Founding family control and capital structure: the risk of loss of control and the aversion to debt. Entrepreneurship Theory Practice 23(4):53–64Google Scholar
  52. Morck R, Shleifer A, Vishny RW (1988) Management ownership and market valuation: an empirical analysis. J Financ Econ 20(1/2):293–315CrossRefGoogle Scholar
  53. Perez-Gonzalez F (2006) Inherited control and firm performance. Am Econ Rev 96(5):1559–1588CrossRefGoogle Scholar
  54. Petersen MA (2009) Estimating standard errors in finance panel data sets: comparing approaches. Rev Financ Stud 22(1):435–480CrossRefGoogle Scholar
  55. Rosenbaum PR, Rubin DB (1983) The central role of the propensity score in observational studies for causal effects. Biometrika 70(1):41–55CrossRefGoogle Scholar
  56. Rozeff MS (1982) Growth, beta and agency costs as determinants of dividend payout ratios. J Financ Res 5(3):249–259Google Scholar
  57. Setia-Atmaja L, Tanewski G, Skully M (2009) The role of dividends, debt and board structure in the governance of family controlled firms. J Bus Finance Account 36(7/8):863–898CrossRefGoogle Scholar
  58. Sharma P, Manikutty S (2005) Strategic divestments in family firms: role of family structure and community culture. Entrepreneurship Theory Practice 29(3):293–311CrossRefGoogle Scholar
  59. Shleifer A, Vishny RW (1986) Large shareholders and corporate control. J Polit Econ 94(3):461–488CrossRefGoogle Scholar
  60. Sraer D, Thesmar D (2007) Performance and behavior of family firms: evidence from the French stock market. J Eur Econ Assoc 5(4):709–751CrossRefGoogle Scholar
  61. Theissen E (2004) Organized equity markets. In: Krahnen J, Schmidt R (eds) The German financial system. Oxford University Press, OxfordGoogle Scholar
  62. Todd PE (2008) Matching estimators. In: Durlauf SH, Bloom LL (eds) The new palgrave dictionary of economics, 2nd edn. Palgrave Macmillan, New YorkGoogle Scholar
  63. Villalonga B, Amit R (2006) How do family ownership, control and management affect firm value? J Financ Econ 80(2):385–417CrossRefGoogle Scholar
  64. Villalonga B, Amit R (2009) How are U.S. family firms controlled? Rev Financ Stud 22(8):3047–3091CrossRefGoogle Scholar
  65. von Eije H, Megginson W (2008) Dividends and share repurchases in the European Union. J Financ Econ 89(2):347–374CrossRefGoogle Scholar
  66. Wenger E, Kaserer C (1998) The German system of corporate governance: a model which should not be immitated. In: Black S, Moersch M (eds) Competition and convergence in financial markets. North-Holland, Amsterdam, pp 41–78Google Scholar
  67. White H (1980) A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroscedasticity. Econometrica 48:817–838CrossRefGoogle Scholar
  68. Zellweger TM, Nason R, Nordqvist M, Brush C (2011) Why do family firms strive for nonfinancial goals? An organizational identity perspective. Entrepreneurship Theory Practice (forthcoming)Google Scholar

Copyright information

© Springer-Verlag 2011

Authors and Affiliations

  • Markus Ampenberger
    • 1
  • Thomas Schmid
    • 1
  • Ann-Kristin Achleitner
    • 1
  • Christoph Kaserer
    • 1
  1. 1.Center for Entrepreneurial and Financial Studies (CEFS)Technische Universität MünchenMunichGermany

Personalised recommendations