THE FINANCIAL STRUCTURE, BEHAVIOUR AND PERFORMANCE OF FAMILY COMPANIES: EVIDENCE FROM UK PRIVATE ECONOMY
Sihar Sitorus, Manchester Business School
Principal Topic
The investigation into the financial structure, behaviour and performance of family companies has been sporadic despite the significant contribution of family businesses in the economy. The current study contributes to the family business field by explicitly considering the ownership structure, internal (e.g. age of CEO, business, financial, management, and exit strategies as well as family objectives), external (e.g. industry and size) characteristics and succession issues, all that influence family business owners’ decisions on their financing policy, such as internal or external financing and by using UK small and medium family enterprises rather than the commonly used large and/or publicly held companies. Therefore, the study answers a number of important research questions: What are the factors affecting the financial decision making of family business owners? What are the relationships among these factors?
Method
The study draws evidence from a desktop analysis of more than 4000 UK based privately held companies and the MBS Survey into the Financial Affairs of Private and Family Companies representing more than 300 private companies participating in the survey. Structural equation modeling was used to find if the interrelationships exist between two or more variables.
Results and Implications
The research confirms that family business owners in making their financial decisions are influenced by several factors. Ownership and generational structures, company and family characteristics affect financial structure. Furthermore, business, financial, management and exit strategies are also interrelated. The evidence also indicates that smaller family companies use safer and more conservative financing such as retention of profits, short-term debt and family loans while the larger ones use retention of profits and long-term debt. Family companies in the hand of descendant generations also show different behaviour towards financing. It appears that descendant generations pursue profitability more than the founding generations and choose safer ways of financing. However, the study needs to consider the impact of estate tax as one important factor of financial decision making.
CONTACT: Sihar Sitorus, Manchester Business School, Booth Street West, Manchester, M15 6PB, United Kingdom; (T) 44 0161 275-6463; (F) 44 0161 275-6489; ssitorus@man.mbs.ac.uk; ssitorus2001@yahoo.com
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