Skip to main content Accessibility help
Hostname: page-component-568f69f84b-klmjj Total loading time: 0.328 Render date: 2021-09-20T09:35:55.425Z Has data issue: true Feature Flags: { "shouldUseShareProductTool": true, "shouldUseHypothesis": true, "isUnsiloEnabled": true, "metricsAbstractViews": false, "figures": true, "newCiteModal": false, "newCitedByModal": true, "newEcommerce": true, "newUsageEvents": true }

Transparency and Financing Choices of Family Firms

Published online by Cambridge University Press:  27 May 2014

Tai-Yuan Chen
Affiliation:, Department of Accounting, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong
Sudipto Dasgupta
Affiliation:, Department of Finance, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong
Yangxin Yu
Affiliation:, Department of Accountancy, City University of Hong Kong, Tat Chee Avenue, Kowloon, Hong Kong.


While recent literature documents that U.S. family firms differ markedly from their nonfamily counterparts, there is a paucity of evidence on how these firms differ in terms of their cost of capital or financial structure. In this paper, we show that family and nonfamily firms differ in their debt maturity and leverage ratios in a manner consistent with the higher expropriation potential of family firms. Moreover, while more transparency causes both family and nonfamily firms to increase the maturity structure of their debt and reduce leverage ratios, the effects are stronger for family firms.

Research Articles
Copyright © Michael G. Foster School of Business, University of Washington 2014 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)


Agarwal, P., and O’Hara, M.. “Information Risk and Capital Structure.” Working Paper, Cornell University (2007).
Ali, A.; Chen, T.; and Radhakrishnan, S.. “Corporate Disclosures by Family Firms.” Journal of Accounting and Economics, 44 (2007), 238286.CrossRefGoogle Scholar
Anderson, R.; Duru, A.; and Reeb, D.. “Founders, Heirs, and Corporate Opacity in the United States.” Journal of Financial Economics, 92 (2009), 205222.CrossRefGoogle Scholar
Anderson, R.; Mansi, S.; and Reeb, D.. “Founding Family Ownership and the Agency Cost of Debt.” Journal of Financial Economics, 68 (2003), 263285.CrossRefGoogle Scholar
Anderson, R., and Reeb, D.. “Founding-Family Ownership, Corporate Diversification, and Firm Leverage.” Journal of Law and Economics, 46 (2003), 653680.CrossRefGoogle Scholar
Anderson, R.; Reeb, D.; and Zhao, W.. “Family-Controlled Firms and Informed Trading: Evidence from Short Sales.” Journal of Finance, 67 (2012), 351385.CrossRefGoogle Scholar
Barclay, M.; Marx, L.; and Smith, C. Jr. “The Joint Determination of Leverage and Maturity.” Journal of Corporate Finance, 9 (2003), 149168.CrossRefGoogle Scholar
Barth, M.; Cram, D.; and Nelson, K.. “Accruals and the Prediction of Future Cash Flows.” Accounting Review, 76 (2001), 2758.CrossRefGoogle Scholar
Berger, A.; Espinosa-Vega, M.; Frame, W.; and Miller, M.. “Debt Maturity, Risk, and Asymmetric Information.” Journal of Finance, 60 (2005), 28952923.CrossRefGoogle Scholar
Berger, P.; Ofek, E.; and Yermack, D.. “Managerial Entrenchment and Capital Structure.” Journal of Finance, 52 (1997), 14111438.CrossRefGoogle Scholar
Bharath, S. T.; Dahiya, S.; Saunders, A.; and Srinivasan, A.. “Lending Relationships and Loan Contract Terms.” Review of Financial Studies, 24 (2011), 11411203.CrossRefGoogle Scholar
Bharath, S. T.; Pasquariello, P.; and Wu, G.. “Does Asymmetric Information Drive Capital Structure Decisions?Review of Financial Studies, 22 (2009), 32113243.CrossRefGoogle Scholar
Billett, M.; King, T.; and Mauer, D.. “Growth Opportunities and the Choice of Leverage, Debt Maturity, and Covenants.” Journal of Finance, 62 (2007), 697730.CrossRefGoogle Scholar
Brander, J. A., and Lewis, T.. “Oligopoly and Financial Structure: The Limited Liability Effect.” American Economic Review, 76 (1986), 956970.Google Scholar
Bushman, R. M.; Piotroski, J. D.; and Smith, A. J.. “What Determines Corporate Transparency?Journal of Accounting Research, 42 (2004), 207252.CrossRefGoogle Scholar
BusinessWeek . “Family, Inc.” (Nov. 10, 2003).
Chang, X.; Dasgupta, S.; and Hilary, G.. “Analyst Following and Financing Decisions.” Journal of Finance, 61 (2006), 30093048.CrossRefGoogle Scholar
Chen, S.; Chen, X.; and Cheng, Q.. “Do Family Firms Provide More or Less Voluntary Disclosure?Journal of Accounting Research, 46 (2008), 499536.CrossRefGoogle Scholar
Chen, S.; Chen, X.; Cheng, Q.; and Shevlin, T.. “Are Family Firms More Tax Aggressive than Non-Family Firms?Journal of Financial Economics, 95 (2009), 4161.CrossRefGoogle Scholar
Chevalier, J. A. “Capital Structure and Product-Market Competition: Empirical Evidence from the Supermarket Industry.” American Economic Review, 85 (1995), 415435.Google Scholar
Claessens, S.; Djankov, S.; and Lang, L.. “The Separation of Ownership and Control in East Asia Corporations.” Journal of Financial Economics, 58 (2000), 81112.CrossRefGoogle Scholar
Dasgupta, S., and Titman, S.. “Pricing Strategy and Financial Policy.” Review of Financial Studies, 4 (1998), 705737.CrossRefGoogle Scholar
Datta, S.; Iskandar-Datta, M.; and Raman, K.. “Managerial Stock Ownership and the Maturity Structure of Corporate Debt.” Journal of Finance, 60 (2005), 23332350.CrossRefGoogle Scholar
DeAngelo, H., and DeAngelo, L.. “Controlling Stockholders and the Disciplinary Role of Corporate Payout Policy: A Study of the Times Mirror Company.” Journal of Financial Economics, 56 (2000), 153207.CrossRefGoogle Scholar
Demsetz, H., and Lehn, K.. “The Structure of Corporate Ownership: Causes and Consequences.” Journal of Political Economy, 93 (1985), 11551178.CrossRefGoogle Scholar
Diamond, D. “Debt Maturity Structure and Liquidity Risk.” Quarterly Journal of Economics, 106 (1991), 709737.CrossRefGoogle Scholar
Diamond, D. “Seniority and Maturity of Debt Contracts.” Journal of Financial Economics, 33 (1993), 341368.CrossRefGoogle Scholar
Ellul, A. “Control Motivations and Capital Structure Decisions.” Working Paper, Indiana University (2009).
Field, L. C., and Lowry, M.. “Institutional versus Individual Investment in IPOs: The Importance of Fundamentals.” Journal of Financial and Quantitative Analysis, 44 (2009), 489516.CrossRefGoogle Scholar
Flannery, M. “Asymmetric Information and Risky Debt Maturity Choice.” Journal of Finance, 41 (1986), 1838.CrossRefGoogle Scholar
Frank, M., and Goyal, V.. “Capital Structure Decisions: Which Factors Are Reliably Important?Financial Management, 38 (2009), 137.CrossRefGoogle Scholar
Gilson, R., and Gordon, J.. “Controlling Controlling Shareholders.” University of Pennsylvania Law Review, 152 (2003), 785843.CrossRefGoogle Scholar
Grossman, S., and Hart, O.. “Corporate Financial Structure and Managerial Incentives.” In The Economics of Information and Uncertainty, McCall, J., ed. Chicago, IL: University of Chicago Press (1982).Google Scholar
Harris, M., and Raviv, A.. “Capital Structure and the Informational Role of Debt.” Journal of Finance, 45 (1990), 321349.CrossRefGoogle Scholar
Healy, P., and Palepu, K.. “Information Asymmetry, Corporate Disclosure, and the Capital Markets: A Review of the Empirical Disclosure Literature.” Journal of Accounting and Economics, 31 (2001), 405440.CrossRefGoogle Scholar
Hermalin, B. E., and Weisbach, M. S.. “Information Disclosure and Corporate Governance.” Journal of Finance, 67 (2012), 195233.CrossRefGoogle Scholar
Holderness, C. “The Myth of Diffuse Ownership in the United States.” Review of Financial Studies, 22 (2009), 13771408.CrossRefGoogle Scholar
Jensen, M. “Agency Cost of Free Cash Flow, Corporate Finance and Takeovers.” American Economic Review, 76 (1986), 323339.Google Scholar
Jensen, M., and Meckling, W.. “Theory of the Firm: Managerial Behavior, Agency Costs, and Capital Structure.” Journal of Financial Economics, 3 (1976), 305360.CrossRefGoogle Scholar
Johnson, S. “Debt Maturity and the Effects of Growth Opportunities and Liquidity Risk on Leverage.” Review of Financial Studies, 16 (2003), 209236.CrossRefGoogle Scholar
Kennedy, P. A Guide to Econometrics, 6th ed. Malden, MA: Blackwell Publishing (2008).Google Scholar
Klasa, S. “Why Do Controlling Families of Public Firms Sell Their Remaining Ownership Stake?Journal of Financial and Quantitative Analysis, 42 (2007), 339368.CrossRefGoogle Scholar
Lang, M., and Lundholm, R.. “Cross-Sectional Determinants of Analyst Ratings of Corporate Disclosures.” Journal of Accounting Research, 31 (1993), 246271.CrossRefGoogle Scholar
Larcker, D., and Rusticus, T.. “On the Use of Instrumental Variables in Accounting Research.” Journal of Accounting and Economics, 49 (2010), 186205.CrossRefGoogle Scholar
Lennox, C. S.; Francis, J. R.; and Wang, Z.. “Selection Models in Accounting Research.” Accounting Review, 2 (2012), 589616.CrossRefGoogle Scholar
Lin, C.; Ma, Y.; and Yuan, X.. “Ownership Structure and Financial Constraints: Evidence from a Structural Estimation.” Journal of Financial Economics, 102 (2011), 416431.CrossRefGoogle Scholar
MacKay, P., and Phillips, G. M.. “How Does Industry Affect Firm Financial Structure?Review of Financial Studies, 18 (2005), 14331466.CrossRefGoogle Scholar
Myers, S., and Majluf, N.. “Corporate Financing and Investment Decisions When Firms Have Information that Investors Do Not Have.” Journal of Financial Economics, 13 (1984), 187221.CrossRefGoogle Scholar
Parsons, A., and Titman, S.. “Empirical Capital Structure: A Review.” Foundations and Trends in Finance, 3 (2009), 193.CrossRefGoogle Scholar
Perez-Gonzalez, F. “Inherited Control and Firm Performance.” American Economic Review, 96 (2006), 15591588.CrossRefGoogle Scholar
Purnanandam, A., and Swaminathan, B.. “Are IPOs Really Underpriced?Review of Financial Studies, 17 (2004), 811848.CrossRefGoogle Scholar
Rajan, R. “Insiders and Outsiders: The Choice between Informed and Arm’s-Length Debt.” Journal of Finance, 47 (1992), 13671400.CrossRefGoogle Scholar
Sengupta, P. “Corporate Disclosure Quality and the Cost of Debt.” Accounting Review, 73 (1998), 459474.Google Scholar
Shleifer, A., and Vishny, R.. “A Survey of Corporate Governance.” Journal of Finance, 52 (1997), 737783.CrossRefGoogle Scholar
Shleifer, A., and Vishny, R.. “Stock Market Driven Acquisitions.” Journal of Financial Economics, 70 (2003), 295311.CrossRefGoogle Scholar
Stulz, R. “Does Financial Structure Matter for Economic Growth? A Corporate Finance Perspective.” Working Paper, Ohio State University (2000).
Tucker, J. “Selection Bias and Econometric Remedies in Accounting and Finance Research.” Journal of Accounting Literature, 29 (2010), 3157.Google Scholar
Villalonga, B., and Amit, R.. “How Do Family Ownership, Control and Management Affect Firm Value?Journal of Financial Economics, 80 (2006), 385417.CrossRefGoogle Scholar
Wang, D. “Founding Family Ownership and Earnings Quality.” Journal of Accounting Research, 44 (2006), 619656.CrossRefGoogle Scholar
Wittenberg-Moerman, R. “The Impact of Information Asymmetry on Debt Pricing and Maturity.” Working Paper, University of Chicago (2009).
Cited by

Send article to Kindle

To send this article to your Kindle, first ensure is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about sending to your Kindle. Find out more about sending to your Kindle.

Note you can select to send to either the or variations. ‘’ emails are free but can only be sent to your device when it is connected to wi-fi. ‘’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Transparency and Financing Choices of Family Firms
Available formats

Send article to Dropbox

To send this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Dropbox.

Transparency and Financing Choices of Family Firms
Available formats

Send article to Google Drive

To send this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Google Drive.

Transparency and Financing Choices of Family Firms
Available formats

Reply to: Submit a response

Please enter your response.

Your details

Please enter a valid email address.

Conflicting interests

Do you have any conflicting interests? *