Corporate Financing and Investment Decisions in Family Firms – A Comparison of Founding and Non-Founding Family Firms

Family ownership is widespread and family owners are often characterized by risk-aversion and a long-term focus. We separate between founding family firms and non-founding family firms with long-term interests to investigate their impact on the financing and investment decisions. From our regression models, we can conclude that founding families carry less leverage but invest more in R&D. While the leverage results are consistent when put through a battery of robustness tests, the R&D results are more volatile. Risk-aversion and socioemotional attachment are used to explain the lower levels of leverage, but these fail to explain the higher levels of R&D. The higher levels are believed to stem from the entrepreneurial trait inherent in founding family firms. Moreover, other factors are also proven to be of importance for these family firms in terms of their financing and investments decisions, e.g. industry effects. Having to conform to such factors, the discretion for owner preferences is believed to decrease. This study contributes to the existing body of literature by demonstrating the heterogeneity of family firms and the importance of differing owner interests