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Debt policy and firm performance of family firms: the impact of economic adversity

Author

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  • Elisabete Simões Vieira

Abstract

Purpose - The purpose of this paper is to analyse the relationship between debt policy and performance among family firms (FF), providing evidence on whether FF differ from non-family firms (NFF). It also focusses on the possibility of asymmetrical debt policy impact on performance between periods of stability and economic adversity. Design/methodology/approach - The paper employs panel data regression, considering a sample of Portuguese listed firms for the period between 1999 and 2014. Findings - Overall, the author find evidence that debt contributes negatively to firms’ performance, which is consistent with the pecking order prediction, and that the relationship between debt and performance do not differ significantly between FF and NFF. After addressing the endogeneity issue, the author conclude that firms’ performance is negatively influenced by both short- and long-term debt. Considering the total debt, the negative relationship between the two variables differs from family and non-family companies. The results show that age and size influences positively, and the independence of the board directors influences negatively the firms’ performance. The empirical findings suggest that under economic adversity, the firms’ performance is negatively affected. Finally, the author conclude that return on assets appear to fit better than return on equity or MB when you want to relate debt and firm performance. Research limitations/implications - A limitation of this study is the small size of the Euronext Lisbon that results in a small sample. Originality/value - This paper offers some insights on the relationship between debt policy and firm performance from a country with weak protection of minority shareholders, concentrated ownership and a significant family control. It also gives the opportunity to analyse whether firm performance differs according to market conditions.

Suggested Citation

  • Elisabete Simões Vieira, 2017. "Debt policy and firm performance of family firms: the impact of economic adversity," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 13(3), pages 267-286, June.
  • Handle: RePEc:eme:ijmfpp:ijmf-03-2016-0062
    DOI: 10.1108/IJMF-03-2016-0062
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    Citations

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    Cited by:

    1. repec:arp:tjssrr:2019:p:18-26 is not listed on IDEAS
    2. Imani Mokhtar* & Sharifah Raihan Syed Mohd Zain & Jarita Duasa & Azhar Mohamad, 2018. "Blockholders and Firm Performance: A Malaysian Evidence," The Journal of Social Sciences Research, Academic Research Publishing Group, pages 885-893:5.
    3. Hanvedes Daovisan & H. L. Shen, 2020. "Does Working Capital Affect Family Firms’ Decision-Making in Laos? Evidence from a Two-Wave Cross-Lagged Approach," Sustainability, MDPI, vol. 12(7), pages 1-16, March.
    4. Luís Pacheco & Carla Lobo & Isabel Maldonado, 2022. "The Presence of Foreign Capital and the Internationalization of Portuguese Industrial SMEs," JRFM, MDPI, vol. 15(2), pages 1-18, February.
    5. Yong Qin & Zeshui Xu & Xinxin Wang & Marinko Škare, 2021. "Are family firms in the eyes of economic policy?," International Entrepreneurship and Management Journal, Springer, vol. 17(3), pages 1233-1259, September.
    6. María Consuelo Pucheta-Martínez & Isabel Gallego-Álvarez, 2020. "Do board characteristics drive firm performance? An international perspective," Review of Managerial Science, Springer, vol. 14(6), pages 1251-1297, December.

    More about this item

    Keywords

    Performance; Capital structure; Recession; Debt financing; Family businesses; G30; G32; M41;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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