Family ownership, control and firm preference for debt financing

Purpose This study aimed to investigate the effect of family ownership (FO) and family control (FC) on firm preference for debt financing and to test whether FC affects the association between FO and debt financing. Design/methodology/approach Debt financing was measured by the total debt to total assets ratio, whereas FO was proxied by family-individual, family-institutional, and family-total shares. Additionally, the appointment of family members, founders, and descendants to CEO positions and the dual role of their CEO positions were used to proxy FC. As a panel data technique, the dynamic estimator of the generalized method of moments (GMM) was employed for a sample of 80 Egyptian listed firms during the 2011–2018 period. Findings The findings showed that debt financing is positively affected by family-individual shares and family-total shares and negatively affected by family-institutional shares. FC, as proxied by family and founder CEOs, and the dual role of their CEO positions has led to more debt consumption as a mechanism to preserve family dominance over the business. Conversely, the presence and the dual role of descendant CEOs have led to less debt utilization due to their risk aversion behavior. Additionally, we showed that the association between FO and debt financing is affected by various FC patterns. Originality/value This study highlighted that firm preference for debt financing is affected by the noneconomic motivations of family CEOs, such as preserving family socioemotional wealth.