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Availability of Credit to Family Businesses

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Abstract

The paper provides evidence that family own- ership is associated with greater availability of credit. This may be because family-owned businesses are seen by lenders as having fewer moral hazard problems than non-family-owned businesses. One reason for this could be that family owned businesses, by definition, have a controlling share in the equity of the firm. Other factors considered important by lenders may be the managerial characteristics, and the relatively conservative investment choices of family-owned businesses. In spite of these advantages, family ownership is not associated with a reduction in premiums on the loans. The research also highlights differences between outside equity holders and debt-holders in their decision to invest in a firm. Equity holders are known to prefer separation of ownership and control, and the possibility of takeovers, as this could increase the value of the firm. Debt-holders, on the other hand, prefer arrangements that ensure continuity and stability. Family Business, Small Business, Credit Rationing.

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Authors and Affiliations

  1. School of Policy Studies, Georgia State University, Atlanta, GA, 30303-3083, U.S.A.

    Cavery Bopaiah

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  1. Cavery Bopaiah
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Bopaiah, C. Availability of Credit to Family Businesses. Small Business Economics 11, 75–86 (1998). https://doi.org/10.1023/A:1007944811224

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