Capital Structure on the Family Business

Fi nalRes ear ch CAPI TALSTRUCTUREON THEFAMI L YBUSI NESS

Cr i st i naJi ménezNavar t a Mar ket i ngandMar ketRes ear ch ( Uni ver s i t yofMál aga)

FACULTAD DE COMERCIO Y GESTION

FACULTAD DE COMERCIO Y GESTION GRADO EN MARKETING E INVESTIGACION DE MERCADOS

TRABAJO FIN DE GRADO “CAPITAL STRUCTURE ON THE FAMILY BUSINESS”

Autora: Cristina Jiménez Navarta Tutor: Daniel Ruiz Palomo

Junio 2015

2

ABSTRACT This research examines the effect of family management, ownership, size and capital structure of 8293 companies between 2011-2012 in Spain. This research finds that most of the companies in Spain are family businesses of a small size and most of them belong in the services sector. When family involvement derives from direct and indirect ownership, the family-debt relation is negative. When families are present on the board or they have more than 50% shares, the debt levels tend to be lower than non-family companies.

As result of that, family companies tend to be more risk averse and make a lower investment, because their main purpose is to successfully continue their business over generations.

Also, family companies, which have success, are spreading their diversity of finances and investments, it means they don’t put all eggs in one basket that could be one of the reasons that during economic recession they will not become bankrupt and remain in business.

RESUMEN Esta investigación analiza el efecto de la gestión, la propiedad, el tamaño y la estructura de capital de 8.293 empresas entre 2011-2012 en España. Donde se concluye que la mayoría de las empresas en España, donde abunda la pequeña y mediana empresa, son familiares dedicadas en su mayoría al sector servicio.

Cuando las familias están presentes en la junta directiva de la compañía o cuentan con mas del 50% de las acciones, los niveles de deuda tienden a ser más bajos que en las empresas no familiares. Esto implica que las empresas familiares tienden a ser más adversas al riesgo, arriesgando menos en sus inversiones, ya que el principal objetivo es continuar con el negocio generación tras generación. Se llega así a la conclusión de que la relación empresa familiar deuda es negativa cuando ésta se encuentra involucrada directamente en la empresa.

Otra de las principales características de las empresas familiares de éxito es que diversifican sus negocios y finanzas. Esta diversificación consiste en invertir en diferentes industrias o sectores, lo que les permite ser menos vulnerables a las crisis económicas y al entorno exterior longrando así mantener durante años las fortunas familiares.

3

KEYWORDS Family Business, financial constraints, capital structure, level of debt.

PALABRAS CLAVES Empresas familiares, restricciones financieras, estructura capital, nivel de deuda.

4

TABLE OF CONTENT BACKGROUND.................................................................................................. 7 1. THE ESSENCE OF FAMILY BUSINESS.................................................. 9 1.1. FAMILY....................................................................................................................... 10 1.2. OWNERSHIP............................................................................................................... 11 1.3. GOVERNANCE AND THE BUSINESS PORTFOLIO ............................................. 11 1.3.1. Strong boards......................................................................................................... 12 1.3.2. Long-term portfolio view ...................................................................................... 12 1.4. WEALTH MANAGEMENT ....................................................................................... 13 1.5. FOUNDATIONS ......................................................................................................... 13

2. HYPOTHESES............................................................................................. 15 3. VARIABLES................................................................................................. 17 3.1 VARIABLE TREATMENT ......................................................................................... 17 3.1.1 Initial variable (Family Ownership)....................................................................... 17 3.1.2. Outcome variable (Leverage)................................................................................ 17 3.1.3. Control Variables .................................................................................................. 17

4. METHODOLOGY....................................................................................... 21 4.1. SAMPLING AND SAMPLE DESCRIPTION ............................................................ 21

5. RESULTS...................................................................................................... 23 5.1. DESCRIPTIVE ANALYSIS........................................................................................ 23 5.2. CORRELATION ANALYSIS ..................................................................................... 24 5.3. REGRESSION ANALYSIS ........................................................................................ 24

6. CONCLUSIONS............................................................................................ 27 REFERENCES .................................................................................................. 31 ANNEX 1............................................................................................................ 33 ANNEX 2............................................................................................................ 34

5

6

BACKGROUND This research makes two contributions to business research. First, this research gives an introduction; it is an overview to get a better understanding of the family businesses that are on market, and the main differences with the non-family business. Also the factors, which are affecting the wealth management, will be explained. Second, it is an empirical study focus on 8293 companies in the Spanish market. In the second part, it is shown how affect the leverage affects in the family and non-family businesses through a descriptive, regression and correlational study.

The research has the following structure. Section one describes the essence of the family business, to support the working hypotheses. Section 2 reviews the main dimensions between capital structure how they affect the leverage. Section 3 describes the variables (initial variable, outcome variable and control variables). Section 4 presents the main results regarding the family involvement in leverage. Section 5 presents the results and section 6 will give a conclusion.

7

1. THE ESSENCE OF FAMILY BUSINESS Family business is not synonymous with small size or SMEs1, one third of all companies on the S&P 500 Index2 are defined as family business. Almost all companies start as a family business, but only those that master the challenges intrinsic to this form of ownership, face incidentals and they are able to adapt to the environment and endure and prosper over the generations.

A simple definition for family businesses could be that the family owns a significant share, more than 50% of the company and can influence important decisions. Most of the times the CEO is a member of the family or the family is involved in the election of the chairman and CEO. Also, the founder of the company was a relative and it continues like that after several generations. Often these families are also involved in management. Thus, family firms are more likely to take a long-term orientation in making strategic investments (Lee, 2006).

One of the largest companies around the world of reference in Spain is Inditex, which capitalizes about â‚Ź92,000 million. Its founder, Amancio Ortega, nowadays he has not an executive positions in the group, remains it is the largest shareholder with a 59.3 percept stake, according to data collected by the CNMV3.

After collection and reading the reviews it is accurate to say that family business is focusing in different dimensions. The most important dimensions are: family, ownership, foundations, business, wealth management and portfolio governance. These dimensions must run well and be in synchronised: harmonious family relations and a common view of how to manage and be involved with the business, and structure provides enough capital for growth while family control the key success factors of the business. [Exhibit 1] 4.

1

SMEs: Small and medium-sized enterprises.

2

The S&P 500 is one of the most commonly used benchmarks for the overall U.S. stock market

3

Spain's supervisory authority for the Spanish financial markets. Spain's financial regulator.

4

Source: The five attributes of enduring family businesses; McKinsey analysis (January 2010)

9

[Exhibit 1] Five Dimensions

1.1. FAMILY McConaughy et al.(1998) define a family firm as a company that is run by a founder or member of the founding family. Much the same, Anderson and Reeb (2003), Faccio and Lang (2002), La Porta et al. (1999), among others, consider family businesses, when the founding family or founding individual own a fraction of the company or serve on the board.

Regardless of this fact, research does not provide a monolithic picture. Family businesses can also fail for many reasons: -

Family conflicts over money

-

Nepotism (favourism granted to relatives) may lead to poor management: This happens when the generations that follow the founder may insist on running the company even though they are not suited for the job. The infighting over the succession of power and effort for some part of the family. For the company remains in the hands of somebody from the family could finish with poor management and go bankrupt. The intern regulations on family´s roles can avoid these pitfalls.

10

-

The lack of work experience. Nowadays is more common that some families encourage family members to work outside the business first and gain relevant experience before seeking senior-management positions.

Indeed, previous research has shown that less than 30 percent of the family businesses survive into the third generation of family ownership. The essential elements of long-term success are professional management and keeping the family committed to and capable of carrying on as the owner.

1.2. OWNERSHIP The perfect equation should be in balance of maintaining family control and influence while raising fresh capital and satisfying the family´s cash needs. But it is not an easy task as it could be broken in the transition of power from one generation to the next one.

Financial policies often strive to retain the family in control, keeping the holding private.

Such an effort will avoid conflicts of interest with external investors looking for higher shortterm returns.

Indeed, some family companies decided to shut external investors out and reinvesting most of the profits, it supposes good profitability, less risk and pay low dividends compared to nonfamily businesses. As for pay-out policies, these are usually long term to avoid decapitalizing the business. Others decided to bring in private investment as a way to inject capital and introduce a more effective corporate governance culture.

1.3. GOVERNANCE AND THE BUSINESS PORTFOLIO Family members actively participate in management and governance activities, and a primary corporate goal is to transfer the company to future generations (Basu, Dimitrova, & Paeglis, 2009).

Most researches on corporate governance deal with two distinct branches. One direction initiated by Berle and Means (1932) is to seek a causal effect on corporate performance from governance variables such as family ownership. By contrast, research by Demsetz and Lehn (1985) and Demsetz and Villalonga (2001) has sought to explain how ownership and other governance variables endogenously respond to firm and industry characteristics, without

11

necessarily inducing a causal effect of ownership on performance.

Family businesses can get on with their business strategies. Two success factors show up frequently: strong boards and a long-term view coupled with a prudent but dynamic portfolio strategy.

1.3.1. Strong boards Values like loyalty or caring of talented people are really appreciated and add value in family businesses respect to non-family businesses.

The previous paragraph was written to show the importance of how to complement the family´s knowledge with fresh strategic perspectives of qualified outsiders. According to an analysis of the S&P 500, on average 39 percent of the board members of family businesses are inside directors (including 20 percept who belong to the family), compared with 23 percent in non-family companies.

1.3.2. Long-term portfolio view Family companies will normally seek long-term strategy looking for a steady growth and performance to avoid risk and possible loss of control of the business.

Having long-term planning and more moderate risk taking helps the company attract, engage and sustain the interest of debt holders. Therefore, family businesses tend to have not only lower levels of financial leverage but also a lower cost of debt than their corporate peers do.

Nonetheless, the long-term perspective may make them less successful during the booms but increase their chances of staying alive in periods of crisis and achieving healthy return over time, although sometimes too much prudence can be dangerous.

The explanation of this could be that most of the family owners have a significant part of their wealth associated with the company, so they try to prevent an excessive risk. For instance, Forbes Wealthiest American Index (2002) shows that family business owners invested on average 69 percent of their fortune in the firm.

12

On the other hand an excessive aversion to risk or an unduly limited investment would restrict the position of company to maintain and build a competitive advantage on the market.

That is why most large and successful companies are multi-business; they renew their portfolio overtimes. Diversification is just an option that helps to the family members to take money and diversify their assets for themselves. In general, family businesses seek a mix between companies with stable cash flows and others with higher risk and returns; these businesses could be unconnected between them or focus on two or three sectors.

1.4. WEALTH MANAGEMENT In order to preserve harmony on the wealth management, companies should diversify risk and providing a source of cash to the family in conjunction with liquidity events.

The family’s desire to retain control and reduce the firm’s risk has opposing effects on leverage decisions. On the one hand, the desire to concentrate voting power motivates families to use more debt. On the other hand, the desire to reduce risk motivates families to use less debt. In a perfect capital market, only investment decisions are important in pursuit of wealth maximization. Thus, finance literature is not explicit on the influence of family business owners’ decisions on the choice of different forms of finance, such as debt or equity.

The companies should identify key factors that increase the chances of success: a high level of professionalism, institutionalized processes and procedures; rigorous investment and divestment criteria; strict performance management; a strong risk-management culture, with aggregate risk measurement and monitoring; and thoughtful talent management. Previous researches, stress the trade off between two distinct motivations that determine the capital structure of family firms: risk aversion pushes firms toward lower debt levels, but the need to finance growth without losing control makes family firms to prefer higher debt levels.

1.5. FOUNDATIONS Nowadays, most of the companies are looking to have a good reputation because money alone does not guarantee a high social impact. A good reputation depends on a few different factors.

Charity is an important element in keeping families committed to the business, by providing meaningful jobs for family members who don’t work for the business in it and by promoting family values as the generations come and go.

13

Sharing wealth in an act of social responsibility. And it will generate good-will toward the business. Family foundations also face organizational and operational choices about how to use their funds in the best way. Several have concluded that in today’s complex environment, partnerships with non-profits or nongovernmental organizations can promote the family’s social goals.

14

2. HYPOTHESES The main objective of this research is analysing the capital structure on the family business and how this affects to the leverage.

The main hypothesis is: H0: There was no significant difference between the leverage in family and non-family business.

There are two alternative hypotheses: H1: There was significant difference the leverage in family and non-family business H1: The leverage was lower on the family business.

On this research it also presents different null hypothesis for some control variables and how they affects to the outcome variable: leverage.

AGE INTERN INDUSTRY FIXAt RISK LIQt

H0: The age of the firm does not affect significantly to the leverage H0: Internationalization does not affect significantly to the leverage H0: The industry of the company does not affect significantly to the leverage.

H0: Assets structure does not significantly affects to Capital Structure.

H0: There economic risk assumed by the company does not significantly affect to the leverage H0: There is no significant effect of the liquidity on the leverage.

H0: The growth of the activity of the firm does no significantly affect to

SGRt

capital structure.

15

H0: The growth of the investments of the firm does not significantly affect to TAGR

PROFt

EXP

capital structure.

H0: The profitability of the company does not significantly affect to the leverage.

H0: Abnormal capital expenditures do no significantly affect to capital structure.

STA

TAXTA LNAT

H0: Turnover of the firm does no significantly affect to capital structure.

H0: Taxes do no significantly affect to capital structure.

H0: Size of the firm does no significantly affect to capital structure H0: The Spanish Region where the firm is located does no significantly affect

COM

to capital structure.

16

3. VARIABLES 3.1. VARIABLE TREATMENT 3.1.1. Initial variable (Family Ownership) The initial variable in this research refers to family ownership (FAMILY), which is measured by the proportion of shares held by the core family. Initial variable takes value 0 and 1. It takes 1 value when it is a family business; which means that business’ family ownership is more than 50%, and 0 when it is a non-family business. Of a total of 8293 companies, 7066 (85.20%) are family business in Spain.

FAMILY

Family. Initial variable. 1: It is a family business. 0: otherwise.

3.1.2. Outcome variable (Leverage) The outcome variable in this research is leverage (LEVt), which is measured with the value of level of indebtedness at the company.

Leverage. The proportion of assets financed by debt.

LEVt

3.1.3. Control Variables According to this research, there are 15 control variables and 17 more variables that they represent the different Spanish Autonomous Communities. The control variables are described in the next table:

AGE

Age of company; Number of years since the company was founded.

17

INTERN

Internationalisation. Dummy variable. 1: The firm imports and/or exports. 0: otherwise.

Four dummy industry variables: PRIM (primary), CONS (construction),

INDUST

MANU (manufacturing) and SERV (services). 1: the firm belongs to the corresponding industry, 0: otherwise.

Fixed Assets to Total Assets is a measure of the extent to which fixed assets are financed with owner’s capital.

FIXATt

Economic Risk: dispersion of EBIT, measured as the standard deviation of EBIT over the average of EBIT for the last three years.

RISK

Liquidity; the degree to which an asset or security can be bought or sold in the market without affecting the asset's price.

LIQt

Sales Growth rate; the amount of increase that sales have gained within a specific period or context.

SGRt

Total Assets Growth Rate; this is the annual firm asset growth rate calculated TAGRt

using the year-on-year percentage change in total assets.

Profitability; the ability of a business to earn a profit. A profit is what is left of the revenue a business generates after it pays all expenses directly related to the PROFt

generation of the revenue.

18

Abnormal Capital Expenditures. Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment. It is estimated as the variation of tangible fixed assets over the average for three years EXPt

period.

Sales Total Assets (Asset Turnover Ratio); The amount of sales or revenues generated per euro of assets. The Asset Turnover ratio is an indicator of the STAt

efficiency with which a company is deploying its assets.

Taxes recognized in the income statement over total assets.

TAXTAt

LNATt

Natural Logarithm total assets as a proxy for the size of the firm.

17 dummy variables for the Spanish Regions with an autonomous government (See annex for further information).

COM

1: the firm is located on the corresponding region, 0: otherwise

19

20

4. METHODOLOGY 4.1. SAMPLING AND SAMPLE DESCRIPTION The data for this research are obtained from 8293 small, medium and huge sized companies in Spain from SABI5 in 2011-2012.

The next step will screen the family businesses with the sample. There are 7,066 (85.20%) family firms; it means a great percentage inside of the total sample (Table 1).

The sample shows that most of the companies are of a small company size (63.5 %) in Spain with 0 – 20 employees (Table 2).

The service sector need highlighting in the industrial sector, it represents 4128 companies (50.4%) of our sample (Table 3).

In addition, the general information of the final sample classified by industry is shown below.

Table 1. Family or non-family sample rate Number of companies

Proportion (%)

Total Firms

8293

100

Non Family Firm

1227

14.80

Family Firm

7066

85.20

Table 2. Size information of the final sample Number of companies

Proportion (%)

Small Size

5269

63.5

Medium Size

2512

30.3

Huge Size

512

6.2

Total

8293

100

Family Business

Non Family Business

Small Size

4919

91.5%

450

8.5%

Medium Size

1969

78.4%

543

21.6%

Huge Size

278

54.3%

234

45.7%

5

Sistemas de análisis de balances ibéricos (Balanced Iberean Analysis System)

21

Table 3. Sectors information of the final sample

Total Firms

Primary

Construction

Manufacturing

Services

139 (39%)

764 (9.2%)

3208 (38.7%)

4128 (50.4%)

75

514

619

689

2694

3563

Non Family Firm 19 Family Firm

120

22

5. RESULTS This section analyses how different types of management: family or non-family involvement affects debt levels 5.1. DESCRIPTIVE ANALYSIS Descriptive analysis describes the basic features of the data in this research. It provides simple summaries about the sample and the measures.

Table 4 shows descriptive statistics for all the variables of the study. The values are estimated as the average of the 17 Spanish autonomous communities (See Annex 1) over the period 2011-2012, and hence each region has one single observation. There are no differences between regions, the only region that has a different behaviour are the Canary Islands.

The variable RISK should be mentioned due to his high values. Probably it could be due to the sample is taken during 2011- 2012 where Spain is immerse of the economic crisis; this brought a great variation margin of the benefits.

Table 4. Descriptive statistics of internal and external financing.

Whole Sample

Family Business

Non Family Business

Min

Max

Mean

S.E.

Min

Max

Mean

S.E.

Min

Max

Mean

S.E.

LEVt

.01

3.334

.548

.003

.013

1.92

.539

0.003

0.01

3.334

.599

.008

AGE

4

112

26.198

.138

4

112

25.82

0.138

4

111

28,38

.482

INTER

0

1

.376

.005

0

1

0.365

0.006

0

1

.441

.014

PRIM

0

1

.017

.001

0

1

.017

0.002

0

1

.015

.004

CONS

0

1

.092

.003

0

1

.098

0.004

0

1

.061

.007

MAN

0

1

.387

.005

0

1

.381

0.006

0

1

.419

.014

SERV

0

1

.504

.005

0

1

.504

0.006

0

1

.504

.014

FIXTt

.001

.994

.399

.002

.001

.994

.394

.003

.001

.989

.427

.007

RISK

-1232.917

2002.882

.736

.339

-1232.971

2002.882

.788

.389

-478.492

223,048

.437

.483

LIQt

0

272.424

1.6

.043

0

272.424

.626

0.047

.023

94.581 1.451

.094

SGRt

-.991

8.216

-.021

.003

-.991

6.585

-.024

.003

-.934

8.216

0

.011

TAGRt

-.934

4.837

-.003

.002

-.811

2.399

-.003

.002

-.934

4.837

.001

.008

PROFt

-2.66

1.516

.064

.001

-.622

.839

.065

0.001

-2.66

1.516

.058

.004

EXPt

-6.481

5.466

.972

.002

-1.313

2.399

.971

.001

-6.481

5.466

.979

.009

STAt

.007

11.526

1.242

.009

.025

11.526

1.225

.009

.007

9.83

1.342

.03

TAXTA

-.222

.471

.006

0

-.222

.251

.006

0

-.182

.471

.006

.001

LNATt

7.601

16.26

9.111

0.012

7.601

15.653

8.954

.011

7.625

16.26

10.015

0.04

0

1

.852

0,004

-

-

-

-

-

-

-

-

FAM

N: 8293

N: 7066

N:1227

23

5.2. CORRELATION ANALYSIS Table 5 presents the correlation coefficients for the variables. The table shows strong downhill linear relating ships for the value [0.7], moderate downhill relationship for the value [0.5], weak downhill relation ship for the value [0.30] or lower and any relation for the value zero.

5.3. REGRESSION ANALYSIS In order to examine the influence of family management on leverage, this research employed a multiple linear regression, which can be specified as:

Y = β0 + β1 ( FAMILY ) + φ (ControlVariables) + εi for companies i = 1,2,…,n where: • Y denotes the dependent variable: leverage.

• FAMILY is a binary variable, which takes 1 in “i” when, it is a family business and 0 otherwise.

• Control variables are the other variables described in the previous sections. There are 16 control variables and the Spanish communities.

•

εi represents the random error.

• n is the sample size.

The null hypothesis shows that there is no significant difference between the family and nonfamily companies management on the level of debt. This hypothesis is tested again the alternative hypotheses that states that family business management affects to level of debt. A statistically significant coefficient β1 will indicate the rejection of the null hypothesis.

Table 6, these models are significant in explaining the leverage. Model 1 is the control model where initial variable “FAMILY” doesn’t appear. Moreover when the family variable is introduced, all variables are still relevant (Model 2). The exceptions of the models are RISK and FIXAt−1 variables, which are not significant. The sign of the relationships between leverage and firm factors (control variables) is positive for sales growth rate (SGRt), total

24

assets growth rate (TAGRt), capital expenditures (EXPt), sales total assets (STA), logarithm total assets (LNATt) and the Spanish autonomous communities (Annex 2,table 5). However, the variables internationalization (INTERNAT), industry sectors (PRIMARY, MANUF, SERIVCES), age (AGE), liquidity (LIQt), Profitability (PROFt) and family have a negative relation.

The regression of model 1 and 2 have an adjusted R2 of 0.221 and 0.223 respectively. That is suggested that it is convenient to consider the model 2, where is include FAMILY variable for better explain the leverage of family and non-family businesses.

25

17

16

15

14

13

12

11

10

9

8

7

6

5

4

3

2

1

LNATt

TAXTA

STAt

EXPt

PROFt

TAGRt

SGRt

LIQt

RISK

FIXTAt

LEVt

SERV

MAN

CONS

PRIM

INTER

FAM

AGE

1

2

1 -.072** 1 1

-.056**

.092**

3

1

-.030**

.004

-.006

4

1

-.042**

-.179**

.045**

-.042**

5

1

-.253**

-.104**

.248**

-.027*

.097**

6

1

-.801**

-.321**

-.132**

-.130**

-.001

-.069**

7

1

.056**

-.079**

.033**

.008

-.025*

-.088**

-.141**

8

1

-.007

.076**

.003

-.155**

.039**

-.118**

-.052**

.008

9

1

-.01

.009

-.001

0

.003

0

.005

.004

-.030**

10

1

.01

-.086**

-.294**

-.019

.017

.009

-.012

-.017

.016

.029**

11

1

-.032**

-.007

-.018

.043**

-.030**

.051**

-.051**

.038**

.037**

-.031**

.003

12

1

.302**

-.028**

.001

-.022*

.001

.026*

.038**

-.129**

.046**

.038**

-.009

-.019

13

1

.192**

.174**

.030**

-.004

.056**

-.188**

-.023*

.066**

-.094**

.047**

.019

.030**

-.062**

14

1

-.561**

-.149**

-.094**

-.043**

.002

-.018

.152**

-.014

.003

.028*

-.02

-.001

-.021

.038**

15

1

.042**

.099**

-.009

.094**

-.097**

-.003

-.277**

.208**

.220**

-.137**

-.150**

-.001

.039**

-.052**

-.055**

16

.110**

-.403**

.704**

.173**

.164**

.071**

-.003

-.085**

-.208**

-.001

.02

-.045**

.029**

.053**

-.001

-.033**

17

.079**

-.161**

-.064**

.009

.090**

.111**

.006

.01

.166**

.044**

-.066**

.044**

.039**

.004

.252**

-.341**

.198**

18

1

1

Table 5. Correlation Analysis

18

** Significant level p < 0,01 (two-tailed). * Significant level p< 0,05 (two-tailed).

N =8293

Table 6. Multiple regression coefficients summary Model 1

Model 2 (Control)

VIF

(Linear)

VIF

INTERNAT

-0.036 (0.005)***

1.245

-0.033 (0.005)***

1.25

PRIMARY

-0.01 (0.02)

1.214

-0.011 (0.02)

1.214

MANUF

-0.077 (0.009)***

3.789

-0.082 (0.009)***

3.805

SERVICES

-0.069 (0.009)***

3.803

-0.074 (0.009)***

3.813

AGE

-0.151 (0)***

1.074

-0.151 (0)***

1.074

FIXTAt-1

0.016 (0.012)

1.321

0.016 (0.012)

1.321

RISK

0.005 (0)

1.007

0.005 (0)

1.008

LIQt

-0.246 (0.001)***

1.039

-0.246 (0.001)***

1.039

SGRt

0.043 (0.009)***

1.15

0.043 (0.009)***

1.15

TAGRt

0.026 (0.014)**

1.161

0.027 (0.014)***

1.161

PROFt

-0.089 (0.043)***

2.647

-0.088 (0.043)***

2.648

EXPt

0.036 (0.02)***

1.504

0.035 (0.02)***

1.504

STAt

0.221 (0.003)***

1.287

0.216 (0.003)***

1.302

TAXTAt

-0.163 (0.159)***

2.105

-0.163 (0.159)***

2.105

LNATt

0.129 (0.002)***

1.252

0.111 (0.003)***

1.417

-

-

-0.048 (0.007)***

1.168

FAMILY R2 F

.221

.223

75.984***

75.432***

Dependent variable: Leverage. Standardized coefficients. Standard error in parentheses. VIF; Variance Inflation Factors. *: p <0.1 statistically significant at 90% ; **: p<0.05 statistically significant at 95% ; ***p<0.01 statistically significant at 99%. Spanish Regions are included but not shown (Annex 2)

27

28

6. CONCLUSIONS This research have been developed in two different parts: The first one is an overview about the essence of the family business and the second part is an empirical study that analyses the impact of family involvement on Spanish companiesâ&#x20AC;&#x2122; leverage.

The first part of this research is an overview about the essence of the capital structure of family business through five dimensions: family, ownership, business and portfolio governance, wealth management and foundations. The results contribute to the literature in emphasising the two main motivations for family firms when deciding their capital structure.

First, long-term view and risk aversion pushes firms toward lower debt levels, but needs to finance growth and the risk of losing control. Second, that the main motivations for the family business are have a good reputation and continue to prosper over generations.

On the other hand, the empirical results reveal significant differences in leverage levels when the family is involved in the companies. The estimates suggest a negative effect for the variable age and leverage. Young companies have a bigger level of debt than established companies. This could be due to the fact that young companies need a higher investment for running a new business.

With regards to companies who make business abroad, this means that the exportation or importation of different products or services have a lower debt than the companies that only make business in Spain. It could be due to business abroad are not affected directly for the Spanish economics conditions or recession. That is why as mentioned before having diversify the business could be a good option to increase profits and reduce level of debt. Other point that it should be mentioned is the different industrial sectors. It shows that primary sector is not significant in this research but the manufacturing and services are.

Companies that have higher growth have a higher leverage; it means that exists a positive effect between both variables. Normally when companies are successful, sales and revenue increase but also costs, production and investments are higher if the company wants to be competitive at the marketplace. However if the company has smaller sales means that they also have less profits and less taxes and at the same time the leverage is lower.

29

30

REFERENCES Christian Koropp, Franz W. Kellermanns, Dietmar Grichnik and Laura Stanley. (25 February 2014). Financial Decision Making in Family Firms: An Adaptation of the Theory of Planned Behavior. SAGE. Christian Koropp, Dietmar Grichnik, Andre ' F. Gygax. (23 August 2012). Succession financing in family firms. Springer Science Business Media.

Maximiliano González, Alexander Guzmán, Carlos Pombo, María-Andrea Trujillo . (4 May 2012). Family firms and debt: Risk aversion versus risk of losing control. Journal of Business Research, 66.

María-José Palacín Sánchez, Filippo di Pietro. (Unknown). The influence of regional institutional factor son the capital structure of Spanish SMEs. Ondrej Machek, Jiri Hnilica. (Unknown). Do Family Firms Use Less Debt than Other Firms?

Empirical Evidence from the Czech Medium and Large Companies.

Christian Caspar, Ana Karina Dias, and Heinz-Peter Elstrodt. (January 2010). The five attributes of enduring family businesses,McKinsey Quarterly Huldah A. Ryan. (Summer 1996). The use of financial ratios as measures of risk in the determination of the bid-ask spread. Journal of Financial and Strategic Decisions, Volume 9 Number 2.

Christian Koropp, Dietmar Grichnik, and Franz Kellermanns. (2013). Financial Attitudes in Family Firms: The Moderating Role of Family Commitment. Journal of Small Business Management , 51(1), pp. 114–137.

Ilya A. Strebulaev a,b,n, Baozhong Yang c. (2013). The mystery of zero-leverage firms.

Journal of Financial Economics, 109, pp 1 -23.

31

Xian Zhang, Jill Venus, Yong Wang . (2012). Family ownership and business expansion of small- and medium-sized Chinese family businesses: The mediating role of financing preference. Journal of Family Business Strategy , 3, pp 97 - 105.

Dr. Rehana Kouser, Adil Awan, Gul-e-Rana, Farasat Ali Shahzad. (December 2011). Firm size, leverage and profitability: overriding impact of accounting informationsystem. Business and Management Review , Vol. 1(10), pp. 58 – 64.

Ana Paula Matias Gama and Jorge Manuel Mendes Galvao. (February 2011). Performance, valuation and capital structure: survey of family firms.

S. Sean Cao. (Unknown). The Total Asset Growth Anomaly: Is It Incremental to the Net Operating Asset Growth Anomaly?.

Investopedia.

(Unknown).

Dictionary

&

Ratios.

San

Investing.

Investopedia

Sitio

web:

University

Sitio

web:

http://www.investopedia.com/ Unknown.

(2006).

16:Risk

Jose

State

http://www.sjsu.edu/faculty/gerstman/StatPrimer/rr.pdf Michael Marz. (Unknown). How to Calculate the Percent Sales Growth on an Income Statement. By Demand Media Sitio web: http://smallbusiness.chron.com/calculate-percentsales-growth-income-statement-67997.html Isabel m. Gaspar, María Domínguez. (25 April 2015). Así son las compañías familiares que más gustan a la bolsa. El Economista.

32

ANNEX 1: Spanish Regions descriptives SECTION 5.

5.1. DESCRIPTIVE ANALYSIS: Spanish Regions descriptives Table 7. Descriptive statistics (Completing table 4) Whole Sample

Family Business

Min

Max

Mean

S.E.

Min

Max

ANDAL

0

1

.095

.003

0

ARAGON

0

1

.046

.002

ASTUR

0

1

.019

BALEAR

0

1

CANARY

0

CANTAB

Non-Family Business

Mean

S.E.

Min

Max

Mean

S.E.

1

.099

.004

0

1

.073

.007

0

1

.045

.002

0

1

.052

.006

.001

0

1

.019

.002

0

1

.015

.004

.025

.002

0

1

.027

.002

0

1

.015

.003

1

.027

.002

0

1

.028

.002

0

1

.026

.005

0

1

.012

.001

0

1

.013

.001

0

1

.011

.003

CLEON

0

1

0.051

.002

0

1

.053

.003

0

1

.042

.006

CMANCHA

0

1

.04

.002

0

1

.044

.002

0

1

.018

.004

CATALONI

0

1

.234

.005

0

1

.229

.005

0

1

.258

.013

VALENCIA

0

1

.128

.004

0

1

.131

.004

0

1

.111

.009

EXTREMAD

0

1

.013

.001

0

1

.012

.001

0

1

.015

.004

GALICIA

0

1

.063

.003

0

1

.064

.003

0

1

.059

.007

RIOJA

0

1

.015

.001

0

1

.016

.001

0

1

.008

.003

MADRID

0

1

.122

.004

0

1

.114

.004

0

1

.167

.011

MURCIA

0

1

.036

.002

0

1

.038

.002

0

1

.022

.004

NAVARRA

0

1

.02

.002

0

1

.019

.002

0

1

.026

.005

BASQUE

0

1

.055

.002

0

1

.05

.003

0

1

.08

.008

33

ANNEX 2: Spanish Regions results of regressions.

SECTION 5.

5.3. REGRESSION ANALYSIS: Spanish Autonomous Communities Table 8. Multiple regression coefficients summary (Completing table 6).

Model 1

Model 2

(Control)

VIF

(Linear)

VIF

ANDAL

0.192 (0.016)***

4.107

0.193 (0.016)***

4.107

ARAGON

0.108 (0.018)***

2.609

0.106 (0.018)***

2.61

ASTUR

0.057 (0.022)***

1.672

0.057 (0.022)***

1.672

BALEAR

0.098 (0.02)***

1.889

0.099 (0.02)***

1.889

CANTAB

0.043 (0.025)***

1.449

0.043 (0.025)***

1.449

CLEON

0.11 (0.018)***

2.778

0.11 (0.018)***

2.778

CMANCHA

0.114 (0.019)***

2.42

0.115 (0.018)***

2.42

CATALONIA

0.22 (0.015)***

7.581

0.218 (0.015)***

7.584

VALENCIA

0.2 (0.016)***

5.093

0.2 (0.016)***

5.094

EXTREMADURA

0.081 (0.025)***

1.464

0.08 (0.025)***

1.464

GALICIA

0.156 (0.017)***

3.167

0.155 (0.017)***

3.167

RIOJA

0.024 (0.024)**

1.556

0.024 (0.024)**

1.556

MURCIA

0.118 (0.019)***

2.268

0.119 (0.019)***

2.268

BASQUE

0.093 (0.017)***

2.918

0.09 (0.017)***

2.922

MADRID

0.182 (0.016)***

4.873

0.18 (0.016)***

4.874

NAVARRA

0.039 (0.022)***

1.725

0.038 (0.022)***

1.726

34