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The capital constraint paradox in micro and small family and nonfamily firms

Anders Bornhäll (HUI Research, Stockholm, Sweden; AND; Department of Economics, Dalarna University, Borlänge, Sweden; AND; Örebro University School of Business, Örebro, Sweden)
Dan Johansson (Örebro University School of Business, Örebro, Sweden AND HUI Research, Stockholm, Sweden)
Johanna Palmberg (Swedish Entrepreneurship Forum, Stockholm, Sweden AND; CESIS, KTH Royal Institute of Technology, Stockholm, Sweden)

Journal of Entrepreneurship and Public Policy

ISSN: 2045-2101

Article publication date: 11 April 2016



The purpose of this paper is to investigate the importance of the entrepreneur’s quest for independence and control over the firm for governance and financing strategies with a special focus on family firms and how they differ from nonfamily firms.


The analysis is based on 1,000 telephone interviews with Swedish micro and small firms. The survey data are matched with firm-level data from the Bureau van Dijks database ORBIS.


The analysis shows that independence is a prime motive for enterprises, statistically significantly more so for family owners. Family owners are more prone to use either their own savings or loans from family and are more reluctant to resort to external equity capital. Our results indicate a potential “capital constraint paradox”; there might be an abundance of external capital while firm growth is simultaneously constrained by a lack of internal funds.

Research limitations/implications

The main limitation is that the study is based on cross-section data. Future studies could thus be based on longitudinal data.

Practical implications

The authors argue that policy makers must recognize independence and control aversion as strong norms that guide entrepreneurial action and that micro- and small-firm growth would profit more from lower personal and corporate income taxes compared to policy schemes intended to increase the supply of external capital.


The paper offers new insights regarding the value of independence and how it affects strategic decisions within the firm.



JEL Classification — L210, G320, G340

The authors gratefully acknowledge the Confederation of Swedish Enterprise for financing the survey. Financial support for Johanna Palmberg from the Smelink Foundation is gratefully acknowledged. The authors are grateful for comments on earlier versions of the paper from Per-Olof Bjuggren, Ana Castro, Niklas Rudholm, seminar participants at CESIS, KTH Royal Institute of Technology, the Inaugural WINIR-conference in London, and Örebro University.


Bornhäll, A., Johansson, D. and Palmberg, J. (2016), "The capital constraint paradox in micro and small family and nonfamily firms", Journal of Entrepreneurship and Public Policy, Vol. 5 No. 1, pp. 38-62.



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