When do family firms consider issuing external equity? Understanding the contingent role of families’ need for control

Prior research has argued that family firms are reluctant to consider external equity as a source of financing because they fear a loss of control, which would limit their socioemotional wealth. However, prior empirical research has neglected potential contingencies that determine whether family firms’ need for control affects their equity financing decisions. The present paper provides first insight into this research void. Building on rational choice theory and a logit regression using secondary data, the authors show that the effect of family firm owners’ need for control on their consideration of external equity depends on (a) the extent to which owners expect investors to interfere with management and (b) the extent to which decision making is affected by emotions. Hereby, the present study provides evidence that family firm owners’ decisions to use external equity are more complex than previously presumed