The impact of family involvement in business on capital structure decisions: a literature review

Résumé

Family-controlled firms are a unique form of business because of the special nature of its ownership structure, management style, and financing needs. Moreover, these firms face difficulty in achieving a balanced mix of available financing alternatives (i.e., debt and equity), and this mix has a direct impact on the firms’ profitability, risk, and value. Therefore, the purpose of this study is to review the literature on how family involvement in business via ownership, management, and control affects capital structure decisions. The review showed that in a comparison with nonfamily businesses, family-controlled firms on average have higher debt levels. Additionally, family ownership is positively associated with debt financing, and the participation of family members in a firm’s top management leads to an increase in the firm’s overall debt level. Insights generated from the current study highlight the critical influence of family involvement in business on key financial policies such as capital structure decisions.

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