The Debt Agency Costs of Family Ownership: Firm Level Evidence on Small and Micro Firms

17 Pages Posted: 31 Aug 2007 Last revised: 4 Mar 2011

See all articles by Mervi Niskanen

Mervi Niskanen

University of Eastern Finland

Virpi Kaikkonen

Kajaani University of Applied Sciences

Jyrki Niskanen

University of Kuopio - Department of Business and Management

Date Written: August 30, 2007

Abstract

This study investigates the impact that family ownership has on loan availability and credit terms. Our study differs from existing literature by investigating the impacts of family ownership on loan availability and credit terms in a sample of small and micro Finnish firms. Our results suggest that loan availability becomes weaker when family ownership increases. Collateral requirements increase with management ownership, but contrary to previous studies on large, listed firms we find no effect on interest rates. These results suggest that there are agency costs involved with family ownership and that banks take this into account when lending to these firms. We also find that the impact of other attributes that affect loan availability of credit terms is different for family firms as opposed to non-family firms. Our results suggest that an increase in firm age improves loan availability and reduces collateral requirements only for the non-family firms. We also find that while an increase in profitability improves loan availability for all firms, it reduces interest rates and collateral requirements only for family firms. The results on relationship lending effects suggest that there are no differences in non-family and family firms. When it comes to bank market concentration, it seems that an increase in the number of local banks improves loan availability only for the non-family firms.

Keywords: Small business borrowing, Agency costs, Family ownership, loan availability, credit terms

JEL Classification: G3

Suggested Citation

Niskanen, Mervi and Kaikkonen, Virpi and Niskanen, Jyrki, The Debt Agency Costs of Family Ownership: Firm Level Evidence on Small and Micro Firms (August 30, 2007). Available at SSRN: https://ssrn.com/abstract=1010905 or http://dx.doi.org/10.2139/ssrn.1010905

Mervi Niskanen (Contact Author)

University of Eastern Finland ( email )

PL 1627
Kuopio, 70211
Finland

Virpi Kaikkonen

Kajaani University of Applied Sciences ( email )

Finland

Jyrki Niskanen

University of Kuopio - Department of Business and Management ( email )

Kuopio, 70211
Finland

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