The impact of family ownership on capital structure - Empirical evidence from Swedish family firms

Abstract: This study investigates how family ownership affects firms' financing decisions in Sweden. The study uses data on publicly listed firms in Sweden from 2014-2019 with 730 firm-year observations. Sweden has a significant portion of family firms and a business environment where control-enhancing mechanisms are used to a large extent. Agency theory and previous studies suggest that higher leverage is applied by controlling families to maintain corporate control and avoid ownership dilution. The reason is that family owners have undiversified portfolios and a strong long-term business commitment. The hypothesis is tested with fixed effects regressions. The findings show that family firms tend to be more leveraged than non-family firms, although family ownership does not impact the financing decisions of Swedish companies. The reason is that higher firm leverage in family-controlled firms is not caused by the family ownership characteristics but rather by firm-specific characteristics, such as larger firm size, lower profitability and higher tangibility, compared to their counterparts. These results imply that Swedish family companies do not apply debt issuance as a control-enhancing mechanism to preserve firm control and avoid ownership dispersion.