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Can Family Involvement Be a Substitute for Executive Inside Debt in Lowering the Cost of Bank Loans? A Behavioral Agency Perspective

Author

Listed:
  • Rong Ding
  • Mingzhi Liu
  • Yuan Wang
  • Zhenyu Wu

Abstract

Using a sample of listed companies in the U.S. between 2007 and 2016, we explore the joint effects of executive inside debt (EID) and family involvement on the cost of bank loans. The empirical results indicate that the mitigating effect of EID on the cost of bank loans is less pronounced in family firms than in their non-family counterparts. We also document that (1) the mitigating effect of EID on the cost of bank loans is strengthened when a firm’s performance is lower than its aspiration level and (2) the moderating effect of family involvement is significant when firm performance is above its aspiration level. Collectively, our findings support the behavioral agency prediction that family involvement shapes firms’ risk-taking preference, which acts as a substitute for EID in decreasing the cost of debt.

Suggested Citation

  • Rong Ding & Mingzhi Liu & Yuan Wang & Zhenyu Wu, 2022. "Can Family Involvement Be a Substitute for Executive Inside Debt in Lowering the Cost of Bank Loans? A Behavioral Agency Perspective," Review of Corporate Finance, now publishers, vol. 2(4), pages 819-860, December.
    • Handle: RePEc:now:jnlrcf:114.00000031
    DOI: 10.1561/114.00000031
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    Cited by:

    1. Ye, Zhiwei & Shahab, Yasir & Riaz, Yasir & Ntim, Collins G., 2023. "Strategic deviation and the cost of debt financing," Economic Modelling, Elsevier, vol. 125(C).
    2. Alice Rossi & Tom Vanacker & Silvio Vismara, 2023. "Unsuccessful Equity Crowdfunding Offerings and the Persistence in Equity Fundraising of Family Business Start-Ups," Entrepreneurship Theory and Practice, , vol. 47(4), pages 1327-1355, July.

    More about this item

    Keywords

    Family involvement; executive inside debt; cost of bank loan; aspiration level;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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