How do Spanish unlisted family firms rebalance their capital structures?
Journal of Family Business Management
ISSN: 2043-6238
Article publication date: 5 October 2020
Issue publication date: 10 February 2022
Abstract
Purpose
This paper seeks to analyze the family firm's capital structure decisions, focusing on the speed of adjustment (SOA) as well as on the effect of distance from the target capital structure on the SOA towards target short-term and long-term debt ratios in unlisted small and medium-sized family firms.
Design/methodology/approach
Methodologically, we use dynamic panel data estimators to estimate the effects of distance on the speeds of adjustment towards those targets. Data for the period 2006–2014 were collected for two research sub-samples: one sub-sample with 398 family firms; the other sub-sample contains 217 non-family firms.
Findings
The results show that the deviation from the target debt ratios impacts negatively on the speeds of adjustment towards target short-term and long-term debt ratios in unlisted family firms. These results suggest that family firms, deviating from target debt ratios, face deviation costs, i.e. insolvency costs, inferior to the adjustment costs, i.e. transaction costs. Therefore, family firms stay away from the target debt ratios for a long time than do non-family firms.
Research limitations/implications
The research sample comprises a low number of family firms, therefore for future research we suggest increasing the size of the sample of family firms to get a deeper understanding of family firms' SOA towards capital structure. Additionally, we suggest the analysis of other potential determinants of the speed of adjustment towards target capital structure.
Practical implications
The results obtained suggest that the distance from the target short-term and long-term debt ratios can be avoided if these firms do not depend almost exclusively on internal finance to adjust towards target capital structure. Moreover, for policymakers, we suggest the creation/promotion of alternative external finance sources, allowing reduced transaction costs that contribute to a faster adjustment of small family firms towards target capital structure.
Originality/value
The most previous research focusing on capital structure decisions have focused on listed family firms. To fill this gap, this study examines the speed of adjustment towards target debt ratios in the context of unlisted family firms. Moreover, transaction costs are a function of debt maturity, therefore this study examines separately the speeds of adjustment towards target short-term and long-term debt ratios. This paper shows that the adjustment costs (i.e. transaction costs) could hold back family firms from rebalancing its capital structure.
Keywords
Acknowledgements
The authors would like to express their acknowledge to the financial support of the research unit CEFAGE-UBI - The Centre for Advanced Studies in Management and Economics of the University of Beira Interior, sponsored by the FCT–Portuguese Foundation for the Development of Science and Technology, Ministry of Science, Technology and Higher Education and Science, project UIDB/04007/2020, respectively.
Citation
Serrasqueiro, Z., Matias, F. and Diéguez-Soto, J. (2022), "How do Spanish unlisted family firms rebalance their capital structures?", Journal of Family Business Management, Vol. 12 No. 1, pp. 41-66. https://doi.org/10.1108/JFBM-02-2020-0012
Publisher
:Emerald Publishing Limited
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