Raising external capital and family control: An Analysis of Large European Firms

We examine the family firms’ propensity to raise outside capital, both equity and debt, and compare it to that of non-family firms. Using a comprehensive sample of 777 large European firms in the period from 1998 to 2002, we find that family firms are, indeed, reluctant to make equity issues compared to non-family firms. However, all other things equal, family firms tend to make new equity issues following periods in which stock prices substantially increased. Family control does not affect the decision to issue debt, unless the founder is still in the company. In that case, founder-led family firms are more likely to issue debt. Finally, we do not find differences in the probability of using rights offerings between family firms and non-family firms to use. Our evidence presents interesting implications for family control firms to understand their long-term aspects of management choices for financing decisions