Relational Networks and Family Firm Capital Structure in Thailand : Theory and Practice

Firms must access capital to remain in business. Small firms have greater difficulty accessing financial resources than have large firms because of their limited access to capital markets. These difficulties are exacerbated by information asymmetries between a small firm’ s management and capital providers. It has been theorized that many information asymmetries can be reduced through networks that link those in need of capital with those who can supply it. This research is about these relationships and their impact on the firms’ capital structure. This research has been limited to a sub-set of small firms, family firms. I have collected data through a survey using a systematic sampling procedure. Both self-administered questionnaires and semi-structured interviews were utilized. The data analysis was based on the responses from two-hundred-and-fifty-six small manufacturing firms in Thailand. Seemingly unrelated regression (SUR), logistic regression, multiple discriminant analysis and Mann-Whitney U test were employed in the analysis. The hypothesis that firms apply a pecking order in their capital raising was confirmed although the generally accepted rationale based on poor access (and information asymmetries) was rejected. Instead, at least for family firms, the desire to maintain family control had a significant impact on the use of retained earnings and owner’s savings. My results also indicated that while the depth of relationships had a positive effect on direct funding from family and friends, networks did not facilitate capital access from external providers of funds. Instead direct communications between owner-managers and their capital providers (particularly bank officials) mattered. A comparative analysisof small manufacturing firms in general and small family manufacturing firms revealed that there were differences between them in regard to their financial preferences, suggesting that family firms should be considered separately in small firm research. Further, the results of this research raise some questions about the appropriateness of applying theories directly from one research context to another without due consideration for the impact of cultural influences. Through this research I have added evidence to the dialogue about small firms from a non-English speaking country by investigating the impact of networks on capital structure and the rationale behind family firm capital structure decisions