Title: Bank loan analysis of family firms: evidence from S&P 500 firms

Authors: Ling-Ling Chang; Daniel F. Hsiao; Yan Hu

Addresses: Department of Accounting, Ming-Chuan University, Taipei 111, Taiwan ' Labovitz School of Business and Economics, University of Minnesota Duluth, Duluth, MN 55804, USA ' College of Business and Public Management, University of La Verne, La Verne, CA 91750, USA

Abstract: Drawn upon agency problem II with the conflict between shareholders and debtholders (Villalonga and Amit, 2006), our study empirically examines whether bank loan provisions of family firms are more restrictive than those of their non-family counterparts. Our empirical results from S&P 500 firms show bank loans of family firms have higher annual fees, but there is no similar pattern with higher loan spread. A further robustness analysis finds that the result is driven by those firms changing status from family firms to non-family firms. In addition, we also find bank loan contracts of family firms are more restrictive than those of non-family firms in terms of financial and general covenants. Finally, our robustness checks provide additional support to these findings. Overall, our results are consistent with prior research, which indicates restrictive covenants are effective monitoring devices in private debt contracting, and may be used to mitigate agency problem II between shareholders and debtholders.

Keywords: family firms; agency problem; bank loan contracts; financial covenants; general covenants; bank loans; family businesses; shareholders; debtholders.

DOI: 10.1504/IJBAAF.2015.077030

International Journal of Banking, Accounting and Finance, 2015 Vol.6 No.2, pp.99 - 121

Received: 25 Aug 2015
Accepted: 23 Mar 2016
Published online: 17 Jun 2016 *

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