Title: The debt agency costs of family ownership in small and micro firms

Authors: Mervi Niskanen, Jyrki Niskanen, Virpi Laukkanen

Addresses: University of Kuopio, School of Business and Management, PL 1627, 70211 Kuopio, Finland. ' University of Kuopio, School of Business and Management, PL 1627, 70211 Kuopio, Finland. ' University of Kuopio, School of Business and Management, PL 1627, 70211 Kuopio, Finland

Abstract: This study investigates the impact that family ownership has on loan availability and credit terms. It differs from existing literature by investigating the impact of family ownership on loan availability and credit terms in small and micro firms. Our results suggest that loan availability becomes weaker when family ownership increases. Collateral requirements increase with family ownership, but contrary to previous studies we find no effect on interest rates. These results suggest that there are agency costs involved with family ownership. We also find that the impact of other attributes that affect loan availability or credit terms is different for family firms. Our results suggest that an increase in firm age improves loan availability and reduces collateral requirements only for the non-family firms. We also find that while an increase in profitability improves loan availability for all firms, it reduces interest rates and collateral requirements only for family firms.

Keywords: borrowing; agency costs; family ownership; loan availability; credit terms; debt; micro firms; collateral requirements; interest rates; firm age; non-family firms; profitability; Finland; small and medium-sized enterprises; SMEs; entrepreneurs; entrepreneurship; family firms; financing; corporate governance; succession issues; small firms.

DOI: 10.1504/IJESB.2010.035823

International Journal of Entrepreneurship and Small Business, 2010 Vol.11 No.3, pp.353 - 366

Published online: 05 Oct 2010 *

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