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How do family ownership and founder management affect capital structure decisions and adjustment of SMEs? Evidence from a bank-based economy

Johann Burgstaller (Johannes Kepler University Linz)
Eva Wagner (Finance Department, Johannes Kepler University, Linz, Austria)

Journal of Risk Finance

ISSN: 1526-5943

Article publication date: 19 January 2015




The purpose of this paper s to study the financing behavior of family firms (FF), as these differ from their small- and medium-sized enterprise (SME) counterparts in their capital structure decision, mainly due to an increased risk aversion and the desire to maintain control over the firm.


A sample of 470 SMEs from a bank-based environment is examined for the period of 2005-2010. A dynamic panel data model is utilized to assess both the role of several capital structure determinants and the target-adjusting behavior for different subsamples of firms.


The results show that FF, whether controlled by founders or not, are relatively more leveraged. The aim to maintain long-term control and limited financing options and other factors seem crucial to the observed differences in leverage and dominate risk considerations associated with higher debt. Presumed differences in agency costs across generations do not drive capital structure decisions, as overall leverage does not differ between founder- and descendant-controlled family firms (FCFF and DCFF, respectively). Firms with a founder-chief executive officer (CEO), however, adjust faster to deviations from a target debt ratio. The effects of many proposed capital structure determinants differ across firm types, but are highly consistent with predictions from the pecking order theory.

Practical implications

Based on the results of this study, we suggest policy-makers in bank-based economies like Austria to strongly focus on mechanisms that facilitate the access to bank debt to ensure adequate allocation of finances to SMEs. This is especially important to stimulate growth and further innovation for the dominant group of FF, as they rely on debt the most to maintain family control.


This paper makes a novel contribution to the literature, as it combines an analysis of the capital structure of non-listed family firms (NFF) in a bank-based economy, the respective role of founder management, the dynamic adjustment to a presumed debt target and joint tests of capital structure theories.



Burgstaller, J. and Wagner, E. (2015), "How do family ownership and founder management affect capital structure decisions and adjustment of SMEs? Evidence from a bank-based economy", Journal of Risk Finance, Vol. 16 No. 1, pp. 73-101.



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