A Research On Leverage Of Family Firms

In modern society, family controlled firm has become one of the most popular and important operating patterns for enterprises. From both theoretic and practical perspectives, the financing and capital structure problem is very important to family controlled firms, and a variety of people have paid much attention to this importance. This paper starts with publicly listed family firms in China, investigates the related theories on capital structure, analyzes the determinants of the leverage of publicly listed family firms in China based on a multiple-factor analyzing model, and use data from publicly listed family firms in China to test the model.The third chapter defines publicly listed family firms in China based on the former research, and discusses the strength and weakness of the family controlled firms in China.The fourth chapter discusses the impact of family control of publicly listed family firms in China on leverage based on the theories on capital structure. There are two main characteristics of families that are likely to have an impact on capital structure decision: family shareholders tend to be more risk averse than their non-family counterparts; family shareholders potentially have a strong incentive to maintain control of their company. Debt can be used to reduce firm risk, and also can be used to concentrate voting power. On the one hand, the desire to concentrate voting power motivates families to use more debt; on the other hand, the desire to reduce risk motivates families to use less debt. The actual leverage decision depends on which effect is more dominant. This paper also discusses the main characteristic of capital structure of publicly listed family firms in China, then compares theleverage of publicly listed family firms in China with Thailand, America and Australia. Law matters theory and private benefit of control theory are cited to make explanation.The fifth and sixth chapters set the analyzing model from three perspectives: the corporate governance structure, the traits of the family controlled firm and the financial condition to analyze the determinants of the leverage of publicly listed family firms in China comprehensively, and use data (1999 to 2002) from publicly listed family firms in China to test the model. Empirical results indicate market value is a better index to measure leverage of publicly listed family firms in China than book value; the market value leverage is significantly positively related to the proportion of independent directors, the shareholding proportion of all the directors, growth opportunity and EVA_ic; The market value leverage is significantly negatively related to the proportion of shareholding directors, the shareholding proportion of the board chairman and profitability. The correlation between market value leverage and the proportion of shareholding directors, the shareholding proportion of the board chairman, profitability, growth opportunity and EVA_ic is highly significant, so the five variables are considered as five important determinants of the leverage of publicly listed family firms in China. An insignificant relationship exists between market value leverage and ROE, firm size.The last chapter analyzes the empirical results and gives the conclusion.Although the research on leverage of the family firms I have made is quite insightful, it is necessary to further my research so that we can get better understanding because the paper is limited by incomplete data and there is the indispensability to improve our leverage indexes.