![]() The pecking order theory is based on the problem of information asymmetry (Myers, 1984 Myers & Majluf, 1984) and assumes that due to incomplete information for investors, borrowing costs will increase (Degryse et al., 2012). When the internal funds are insufficient, the firm will resort to external funds, with a preference for debt, and, lastly, equity. According to this theory, firms will first use internally generated funds, such as retained earnings. One of the most prominent theories is the pecking order theory (Myers, 1984), which describes a preferred order in the various financing sources that firms use to finance their investments. Over the years, several theories have tried to explain these financing decisions. The financing decisions they make are essential for a firm’s survival (Koropp et al., 2014) and result in a particular capital structure (Martinez et al., 2019). Our research thus indicates that future research should pay attention to the peculiarities of family firms when investigating their financing decision.įirms use multiple sources of funds to finance their overall operations, investments, and growth (Martinez et al., 2019). Especially the retention of control over the firm and the aim to pass the firm to the next generation appear to play an important role in determining this order. Our results show that they prefer internal financing, followed by bank debt, family capital, and external capital. We investigate over a thousand financing decisions of 277 privately held family firms. In this research, we take these issues into account in order to develop-theoretically and empirically-a family firm pecking order. Next, the business family itself can act as an external source of finance, which is not yet accounted for in the current pecking order model. First, socioemotional aspects influence decision-making in family firms and thus probably also financing decisions. For family firms, the most ubiquitous form of business organization worldwide, two important aspects have been ignored in this research until now. According to traditional finance theories, they generally follow a so-called pecking order: they prefer to first use their internal funds, before turning to external financing. How do family firms finance their investments? When looking for ways to finance their investments, firms have several options. This paper thus provides more insight into the reasoning behind financing decisions in private family firms. However, when it is needed, they will opt for family capital over external capital. These dimensions ensure that family firms try to avoid extra capital. We also find that SEW considerations play a role in this financing decision. Our findings indicate that family firms first prefer internal financing, next debt financing, followed by family capital, and last external capital. We integrate the elements of the socioemotional wealth perspective to theoretically explain the preferred order and introduce family capital into the pecking order model. ![]() Given the shortcomings (both theoretically and empirically) of the current literature, we analyze 1087 incremental financing decisions from 277 family firms to develop and test a specific family firm pecking order. However, not much is known about the applicability of this theory in private family firms. These decisions are generally described through the pecking order theory. One of the factors that influence their survival and development are their financing decisions. Their survival and growth are thus not only crucial for the firms themselves but also for the overall economy. Family firms are one of the most ubiquitous forms of business organizations worldwide.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |