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Raising capital for the family firm for sustainability: Whence the advantage?

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  • Xiang, Dong
  • Zhang, Yuming
  • Worthington, Andrew C.
  • Liu, Yanchu

Abstract

Using a sample of Chinese small and medium-sized firms, we compare financing costs for family and nonfamily firms. We find that family firms enjoy relatively lower average financing costs through mitigating agency problems, the provision of more collateral, and the greater reliance on cheaper internal finance. Family firms also make use of their advantage in the pledged assets of family members, thereby making them less subject to financing constraints. We also find that the apparent inconsistency between the willingness and likeliness to rely on internal finance for family firms largely reflects the financial constraints of smaller firms.

Suggested Citation

  • Xiang, Dong & Zhang, Yuming & Worthington, Andrew C. & Liu, Yanchu, 2020. "Raising capital for the family firm for sustainability: Whence the advantage?," Technological Forecasting and Social Change, Elsevier, vol. 151(C).
    • Handle: RePEc:eee:tefoso:v:151:y:2020:i:c:s004016251930277x
    DOI: 10.1016/j.techfore.2019.119822
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    More about this item

    Keywords

    Family firms; Small and medium-size enterprises; Capital constraints; Cost of capital; Sustainability;
    All these keywords.

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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