Public family firms and capital structure: A meta‐analysis

• Published date: 01 May 2021
• Author: Christopher Hansen,Joern Block
• Date: 01 May 2021
• DOI: http://doi.org/10.1111/corg.12354

ORIGINAL ARTICLE

Public family firms and capital structure: A meta-analysis

Christopher Hansen

1

| Joern Block

1,2,3

1

Department of Management, Trier University,

Trier, Germany

2

Erasmus Research Institute of Management

(ERIM), Erasmus University Rotterdam,

Rotterdam, The Netherlands

3

Witten Institute for Family Business (WIFU),

Witten/Herdecke University, Witten, Germany

Correspondence

Joern Block, Department of Management,

Trier University, Universitätsring 15, 54296

Trier, Germany.

Email: block@uni-trier.de

Abstract

Research Question/Issue: In this study, we examine the impact of family firm status

on publicly listed firms' leverage ratios. Furthermore, we investigate the moderating

role of a country's institutional setting, especially its shareholder and creditor rights,

on this relationship.

Research Findings/Insights: Conducting a meta-analysis on 869 effect sizes from

613 studies, we find an overall slightly negative but significant relationship between

family firm status and leverage. Our results reveal a large amount of heterogeneity

and considerable mean effect size differences across the 48 countries included in the

study. The results of our meta-regression analysis reveal significant moderating

effects of shareholder and creditor rights on family firms' capital structure decisions.

Whereas stronger shareholder rights have a positive impact on family firm leverage,

stronger creditor rights have a negative impact.

Theoretical/Academic Implications: Our study combines the two dominating and

competing views on family firm leverage. On the one hand, the overall lower leverage

ratio of family firms confirms the risk-aversion view of family firms. On the other

hand, control considerations also have a significant impact on leverage ratios, as fam-

ily firms adjust their capital structure dependent on shareholder and creditor rights in

their home country. Our study highlights the importance of the institutional setting

on firms' financing patterns.

Practitioner/Policy Implications: The results suggest a significant impact of a coun-

try's institutional setting in general, and its strength on shareholder and creditor

rights in particular, on family firms' capital structure decisions. Control considerations

result in a strategic use of debt financing that ensures the owner family's dominant

position in the firm and prevents potentially harmful conflicts with minority share-

holders or creditors.

KEYWORDS

Corporate Governance, capital structure, family firms, leverage, meta-analysis

1|INTRODUCTION

Corporate governance attributes such as ownership and board

characteristics are important determinants of firms' capital structures

(Berger, Ofek, & Yermack, 1997; Brailsford, Oliver, & Pua, 2002; Wen,

Rwegasira, & Bilderbeek, 2002). Families are the most common share-

holders around the world and analyzing the capital structure of family

firms has gained increased interest in research (Michiels & Molly, 2017;

Received: 1 October 2019 Revised: 4 November 2020 Accepted: 6 November 2020

DOI: 10.1111/corg.12354

This is an open access article under the terms of the Creative Commons Attribution-NonCommercial License, which permits use, distribution and reproduction in any

medium, provided the original work is properly cited and is not used for commercial purposes.

© 2020 The Authors. Corporate Governance: An International Review published by John Wiley & Sons Ltd.

Corp Govern Int Rev. 2021;29:297–319. wileyonlinelibrary.com/journal/corg 297

Motylska-Kuzma, 2017; Thiele, 2017). In the literature, there exist

two competing views on the relative use of debt by family firms

compared to other firm types. The first perspective highlights the risk

aversion of family firms due to their owners' low wealth diversification

(Anderson & Reeb, 2003) and argues that family firms avoid debt

because of the accompanying increased bankruptcy risk (Mishra &

McConaughy,1999). The second perspectivehighlights the importance

of family owners' control considerations for capital structuredecisions.

Following this argumentation, family firms prefer debt as a nondiluting

financing strategy over the issuing of new equity (Croci, Doukas, &

Gonenc, 2011). The empirical findings so far are inconclusive, and

results supporting each view exist. The results also differ across

countries. Lower leverage ratios have been found for family firms in

Chile (Jara, Pinto-Gutiérrez, & Núñez, 2018), France (Benkraiem,

Hamrouni, Miloudi, & Uyar, 2018; Latrous & Trabelsi, 2012; Margaritis

& Psillaki, 2010), Germany (Ampenberger, Schmid, Achleitner, &

Kaserer, 2013; Schmid, 2013), Saudi Arabia (Al-Ajmi, Abo Hussain, &

Al-Saleh, 2009), and the United States (Mishra & McConaughy, 1999).

In contrast, higher leverage ratios have been found for family firms

in Australia (Setia-Atmaja, 2010; Setia-Atmaja, Tanewski, & Skully,

2009), Brazil (Kayo, Brunaldi, & Aldrighi, 2018), Canada (King &

Santor, 2008), Egypt (ElBannan, 2017), Italy (Morresi & Naccarato,

2016), Poland (Jewartowski & Kałdo

nski, 2015), Thailand and Indonesia

(Bunkanwanicha, Gupta, & Rokhim, 2008; Wiwattanakantang, 1999),

the United States (Keasey, Martinez, & Pindado, 2015), and multi-

country samples (Croci,Doukas, & Gonenc, 2011; Ellul,2009).

In this study, we conduct a meta-analysis examining the relation-

ship between family firm status and leverage ratio. Meta-analysis is a

powerful tool to summarize the findings of a research field and to

identify underlying moderators of a relationship of interest (Gonzalez-

Mulé & Aguinis, 2018). Given the contradicting empirical findings and

perspectives on family firm leverage, there is a need for a meta-

analysis. We focus on publicly listed firms, which have a wider array

of financing choices than private firms, are less credit constrained, and

can adjust their capital structures at lower cost (Faulkender &

Petersen, 2005; Myers, 2001). The capital structure choices of public

firms are thus different from those of private firms.

Based on a sample of 869 effect sizes from 613 primary studies

across 48 countries, our univariate meta-analysis reports an overall

slightly negative relationship betweenpublic family firms and leverage.

This result supports the view of the risk-averse family firm that

eschews debt. However, in line with the literature, we find consider-

able differences across countries. To explore this heterogeneity, we

investigate the moderating roles of country-level shareholder and

creditor rights in a multivariate hierarchical meta-regression analysis.

Our results show that control considerations matter and lead to a

strategic use of debt, which guarantees the ownerfamily a higher level

of control. Specifically, stronger shareholder rights have a positive

moderating impact on the relationship between family firms and

leverage, whereas stronger creditor rights have a negativemoderating

effect. Post hoc analyses further show that the positive effect of

shareholder rights on family firm leverage is especially driven by

minority shareholders' rights in corporate governance. Another

analysis shows that the legal origin of a country seems not to have an

impact on the relationship betweenfamily firms and leverage ratios.

Our study contributes to corporate governance, corporate

finance, and family business research in multiple ways. Following ini-

tial works by Modigliani and Miller (1958), Myers (1977, 1984), and

numerous other scholars, the investigation of firms' capital structure

decisions is at the heart of both theoretical and empirical corporate

finance research. Although a large number of empirical studies already

exist, the findings on the determinants and consequences of firms'

capital structure decisions are often inconclusive, which is why a

meta-analysis such as ours can fill an important gap. Our meta-

analysis on the capital structure of public family firms shows that

these firms differ from nonfamily firms and that their capital structure

is influenced by country-level shareholder and creditor rights. Hence,

our study contributes to an important discussion in corporate gover-

nance and corporate finance research about how ownership types

and differences in national corporate governance systems influence

corporate financing and capital structure decisions (e.g., Brailsford

et al., 2002; Boubakri & Ghouma, 2010; Godlewski, 2020; Shah, Shah,

Smith, & Labianca, 2017). Such an aggregated form of evidence was

previously lacking in capital structure research. Our study also contrib-

utes to the family business literature, where several meta-analyses

already exist, especially with regard to firm performance. Whereas

some of these studies investigate family firm performance in a

general context (e.g., Hansen & Block, 2020; Hansen, Block, &

Neuenkirch, 2020; O'Boyle, Pollack, & Rutherford, 2012; Taras,

Memili, Wang, & Harms, 2018; Wagner, Block, Miller, Schwens, &

Xi, 2015), others focus exclusively on private firms (Carney, Van

Essen, Gedajlovic, & Heugens, 2015), publicly listed US firms (Van

Essen, Carney, Gedajlovic, & Heugens, 2015), or publicly listed family

firms in emerging markets (Duran, Van Essen, Heugens, Kostova, &

Peng, 2019; Wang & Shailer, 2017). Further meta-analyses have been

conducted to shed light on family firms' internationalization (Arregle,

Duran, Hitt, & Van Essen, 2017), innovation (Duran, Kammerlander,

Van Essen, & Zellweger, 2016), and corporate social responsibility

(CSR) behavior (Canavati, 2018). Our study offers a unique contribu-

tion beyond these existing studies in that it is the only meta-analysis

to date that focuses on family firms' financing behavior. Based on our

findings, we suggest that differences in national corporate governance

systems matter for family firm's financing behavior (Aguilera,

Talaulicar, Chung, Jimenez, & Goel, 2015). In this sense, we follow the

calls for further research by Ampenberger et al. (2013), Gómez-Mejía

et al. (2014), and Michiels and Molly (2017), and highlight the impor-

tance of countries' institutional settings in family firms' financial deci-

sion making, especially concerning capital structure decisions. We

identify shareholder and creditor rights as important moderators of

the relationship between family firms and leverage ratios. These insti-

tutions matter because they constitute the framework and context for

owner families' control considerations. Furthermore, our results

enhance the understanding of potential principal–principal conflicts in

family firms concerning financing decisions. Most research on

principal–principal conflicts in family firms so far has been conducted

regarding firm performance (Madison, Holt, Kellermanns, &

298 HANSEN AND BLOCK