| Until recent years, the problems of business finance become a hot point in domestic economy research with Chinese family business development. Although many bachelors have discusses this problem, there are some shortages in current research. Because of the difference of framework, method and visual angle, these researches can not give a comprehensive view to this problem. Based on these previous researches, we try to find out a preferable clew to study the nature and core of small & meddle family business finance this problem in detail. In chapter one, we discuss the applicability of mainstream finance theories to the small & meddle family business finance problem and bring forward the research methods that we accepted and used in this paper. Through analyzing the applicability of mainstream finance theories, we find that we cannot use these theories directly, or we will get something wrong and misunderstand the nature of family business finance. So in chapter one, we firstly give a review on the mainstream finance theories in detail and study the hypothesis and logic method of these theories. Then we can find out the limitation of these theories and give the proper research methods and views. In chapter two, we study the particularity of small & meddle family business finance. After studying the difference between family business and other kinds of business in financial action, we find that the entrepreneur is central contractor in small & meddle family business'financial contracting and the aim and interest of family have an important effect on the business'finance contract arrangement, which can be view the unique characters of small & meddle family business financing action. Because of these characters, the small & meddle family business often show a tendency of inner-finance preference. This chapter also complements and deepens the chapter one. Since family firm is the organization consistent of subsystems: family and enterprise, which are the subsystem with mutual connections. Family has relatively important non-monetary interest in family enterprise: For instance, family members can get employment opportunity and raise themselves human capital through learning by doing; family members can get profit through the bidirectional capital flow between enterprise and family; family can get the raising of reputation and high social position from the development of enterprise. In sum, family goal and enterprise each has its goal that often have conflict, and this kind of conflict can affects entrepreneur's decision in the financing arrangement of family firm. And entrepreneur also has own family in enterprise: firstly, family members'benefit is the important composition of entrepreneur utility and the altruism of entrepreneur can produce strong influence for the financing arrangement of family firm, entrepreneur not only cares for his utility but also the benefit of family; secondly, entrepreneur can hold his own fate and feel the achievement from enterprise development, this kind of goal also effect entrepreneur's decision; thirdly, the goal that build and transmit enterprise empire to descendants have important affection on enterpriser'financial decision. The realities are different from the assumption with main stream finance theory and entrepreneur is the central contractor in family firm's financing arrangement. Because of consideration of the interests of his own and family members, entrepreneur will seek the financing arrangement that is most favorable to him and his family in different financing arrangement. Because different financing arrangement is correspond to different governance structural and property right( especially control right) arrangement, so every financing arrangement will bring different benefit ( cost ) to entrepreneur and his family and then the entrepreneur will consider the advantages and disadvantages of different financing arrangement and show an different financial goal , that is the goal of entrepreneur in financing arrangement is not, monetary maximum or profit maximum which is been confirmed by many foreign scholars'empirical, this kind of characters of family business is also reason that main stream finance theory can not explain successfully the of family business financing arrangement. We think that entrepreneur will be very careful to pursue now currency profit and give up family interests and entrepreneur's non-monetary interest. As central contractor in financing arrangement, entrepreneur will try to realize the balance between family goal, entrepreneur goal and firm goal to get his utility maximum In chapter three, we investigate the influence of external finance to family firm. We try to explain why entrepreneur have a tendency of inner-finance preference and blackball external finance especially the external share finance under the special condition and goal of family firm. One reasonable explanation is that the cost of external finance is higher than the profit, so entrepreneur will certainly give off theexternal finance opportunity and seek for other finance ways. We first divide the finance two parts: internal finance and external finance and give the definition to the direct cost and indirect cost of finance from the standpoint of entrepreneur. The "internal"and "external"are defined according to the fact whether one finance arrangement will dilute or transfer entrepreneur's control right. The external finance means that the entrepreneur transfer control rights to external investor and include external share finance and external debt finance. The internal finance include the fund of enterpriser and his family, profit retain, employee hold share and enterpriser social relation network finance. After analyzing the directly cost of the external financing, we find that the cost of debt finance of family firm is higher, at least, than the large open family firm and the direct cost of share finance of the medium or small family firm is also high. Then we study the negative influence of external financing bringing to entrepreneur and his family, we regard it as the indirect cost of external finance, which include three mainly aspects: External financing cause entrepreneur to lose and dilute control right; External financing need enterprise disclose their information; External investor intervention will do damage to enterprise competition ability. We also discover that because the financing negotiation force of entrepreneur is low in early stage, the entrepreneur who seeks external financing will pay out much control right and bear much finance cost. The high direct cost of external financing is not the key of entrepreneur decision. In fact, it is the very high indirect cost is the obstruction that keep entrepreneur from external financing: outside investor maybe require high interest payment and they maybe disclose the crucial information of enterprise; the monitoring action of outside investor can do damage to enterprise's competition ability and the interests of entrepreneur and his family; and the bankruptcy power of creditor can also effect entrepreneur'decision. Therefore the direct and indirect cost of external financing are all high for those small & meddle family firms especially when they are in early stage, then the family firm often show internal financing liability and dislike the external financing. We also find that the control right is the important factors in entrepreneur's choice. The scope and implementing condition of control right are different for different kinds of financing,therefore family firm often reject external equity financing, on the other hand ,because bankruptcy cost of debt financing is high, the entrepreneurs will not seek much external debt financing . In chapter four, we study how family firm make choice between firm development and keeping control and the affection of heterogeneity of entrepreneur to this kind of choice and final finance arrangement. The intention of keeping control right of entrepreneur does not only directly affect development speed, scale and governance structure change of family firm, but also determine the family firm to show internal financing preference. The reason of internal financing preference lies in that entrepreneur tries to retain control right, instead of the restriction of outside financing environment or the influence of high direct cost of finance. Since retaining control right will cause enterprise to rely on internal resource to develop and can not support enterprise develop fast, therefore entrepreneur needs have a choice in enterprise fast increase (external financing ) and keeping control right (internal financing ), that is, entrepreneur should make choice between the monetary profit and control right dilution that the external financing bring up. Because of the interests of family and entrepreneur'non-monetary interests, some entrepreneurs will select to retain control right instead of realizing quick expansionism through external financing. Since adopting utility analysis method, therefore capital cost has become a completely subjective concept, and we will consider the heterogeneity of entrepreneur. Then we have analyzed one important aspect of entrepreneur heterogeneity: the preference and value of entrepreneur has important affection to the scale, development speed, governance structure and finance of enterprise. We think that the entrepreneurs who care for family benefit are easier to reject external finance. Then we use the empirical study and case study to explain this hypothesis. In chapter five, we study the finance problem of Chinese small & meddle family firm. The development of Chinese family firm is accompanied by economy reform and special economy environment, at the same time, peculiar eastern Confucian cultural and incomplete capital market make Chinese family firm to be different from western enterprise. Therefore we explain the phenomenon that the proportion of Chinese family firm internal finance are much higher than the one of family firms...
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