Empirical Study On Debt Financing And Investment Behavior Of Chinese Family Firms

The ubiquity of controlling shareholders and the conflicts between the controlling shareholders and other stakeholders are popular in the field of study on corporate finance. Basing on the prevalent familization of privately-held firms in China, it is interesting and significative to investigate the channel of controlling power holding through a series of financing arrangements and its economic results in Chinese family firms.Using a sample of A-share firms during 2001-2004,we investigate the non-dilution effect and the bankruptcy entrenchment effect of debt. The empirical test reveals that family controlled firms appear to have higher levels of leverage than non-family counterparts due to the non-dilution effect of debt. Additional analysis indicates that the relationship between the percentages of ownership and levels of leverage is nonlinear in all family firms. We split the sample into three sub-samples according to the different percentages of ownership and find that the percentages of ownership are negatively related to the levels of leverage in the sub-samples,and the leverages in firms the percentages of ownership of family ranging from 20% to 30% are higher than that in other family firms, which support the two effects of debt financing.We also investigate the investment effects of debt financing behavior in Chinese family firms. The empirical results showed that debt financing exert remarkable positive influence on investment of family firms. And the regulative effect of debt plays insignificant role in corporate governance. Further empirical results showed that the amplificatory effects of the scale of debt,short-term debt and bank loan credit are more significant in those firms with relative controlling power of family shareholders,but trade credit basing on reputation and personal trust plays a restraining role on overinvestment in all family firms.Our findings have remarkable policy signification. Due to the significant differences of debt financing behavior between family firms and non-family firms,regulations on bank loan credit and investment of family firms should focus on the transparency of family shareholders and the aggrandizement of supervision from public medias,and increase the information quality of family firms and reduce the private benefits of control exclusively enjoyed by family controlling shareholders. Thereby,improve the financing and investment decisions in family firms and protect the interests of other stakeholders.