Main financial factors influencing the survival, development and performance of family firms

Sometimes the impossibility of employing an adequate level of debt may prevent family firms from developing or reaching high performance; however, they can increase their ability to collect debt finance thanks to personal assets to collateralize or personal guarantees, supplied by family members. Furthermore, agency costs of equity are negligible in family businesses, owing to the insignificant separation among the functions of ownership, control and management and their intra-familial altruistic linkages, but agency costs of debt are high, as family firms are usually small or medium-sized enterprises and, thus, more opportunistic and little transparent. Agency conflicts between majority and minority shareholders prevent family firms, to some extent, from getting equity finance and developing, as non-family and minority shareholders may undergo a loss of personal wealth. The level of debt tends to increase when family firms grow. In the early stages of its development, a family-owned firm usually relies on personal savings and sources of capital provided by friends and relatives; while, in the later stages of its growth, a family-owned firm can more easily employ debt and external equity to finance its development.