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Review of Managerial Science

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01.07.2013 | Original Paper

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

verfasst von: Markus Ampenberger, Thomas Schmid, Ann-Kristin Achleitner, Christoph Kaserer

Erschienen in: Review of Managerial Science | Ausgabe 3/2013

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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.

Vorheriger Artikel Explaining costumer reactions to real stockouts

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Our definition of a family firm is related to founding family ownership and management. Section 3.4 gives a detailed description of our definition.

Antoniou et al. (2008, p. 59).

It should be mentioned that there is also a strand of literature looking at decision making in family firms from a behavioral perspective (e.g. Sharma and Manikutty 2005 or Zellweger et al. 2011).

Indeed, specification tests indicate the existence of fixed-effects.

Based on their two-digit primary SIC-Codes 60–65 and 67, we identify 153 firms form the financial service sector. Following several other studies we exclude them from our analysis due to their accounting specifics.

Although we have complete ownership and board data for 5,135 firm-year observations, we cannot use all observations in our regressions (Sect. 5) due to incomplete or missing accounting data from Worldscope.

Despite intensive research, we were not able to identify the ultimate owner of unlisted firms in 150 firm-years.

Recent empirical studies on family firm performance for France (Sraer and Thesmar 2007) and Germany (Andres 2008) use similar family ownership thresholds in order to account for the more concentrated ownership structures in Continental Europe compared to the U.S.

For example, Block (2011) uses a similar approach in the context of R&D decisions.

To avoid data inconsistencies, we eliminate all leverage ratios which are larger than one or below zero. Beneath this leverage ratio, several other definitions of leverage are investigated: First, a measure for long-term leverage based on the book value of equity is used. To avoid a potential underestimation of leverage, we analyze the firms’ total liabilities as well. Finally, we calculate a financial leverage that only considers interest-bearing debt components.

Unfortunately, we were not able to obtain the forecast of the German Council of Economic Experts for years before 1998. However, since expected inflation is constant over all companies in one year, it is implicitly covered by the year dummies.

It should be noted that under the German corporate governance system the management board has by far the strongest influence on corporate decision making.

Cf. Fahlenbrach and Stulz (2009) for a similar argumentation about the special capabilities of founder CEOs. See Bertrand et al. (2008) for the “quiet life view” of CEOs and Adams et al. (2005) for empirical evidence on the strong decision power of founder CEOs. In line with this view, several studies have confirmed that corporate performance advantages of family firms depend on CEO identity; see for example Villalonga and Amit (2006) or Perez-Gonzalez (2006).

Cf. Rosenbaum and Rubin (1983), Heckman et al. (1997) or Todd (2008) for a more detailed description of the applied methodology.

Cf. Klasa (2007) for application of a similar treatment in the construction of a matching estimator. Klasa (2007) uses this procedure to study what determines the families’ decision to finally sell their remaining ownership stake within the family business.

The different intervals account for the fact that the firm might need some time to adjust the leverage ratio after the family has left the management board. For example, Hovakimian et al. (2009) argue that firms may face impediments when adjusting their capital structure.

The nomenclature follows Villalonga and Amit (2009). Other possible methods to split family firms in these two sub-groups lead to similar results.

Note that we cannot find ownership information for all preferred shares. Consequently, we drop those firm-years with missing information. Hence, the final number of firm-year observations in this robustness test is reduced.

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Titel: Capital structure decisions in family firms: empirical evidence from a bank-based economy
verfasst von: Markus Ampenberger
Thomas Schmid
Ann-Kristin Achleitner
Christoph Kaserer
Publikationsdatum: 01.07.2013
Verlag: Springer-Verlag
Erschienen in: Review of Managerial Science / Ausgabe 3/2013
Print ISSN: 1863-6683
Elektronische ISSN: 1863-6691
DOI: https://doi.org/10.1007/s11846-011-0077-2

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