Financial Attitudes in Family Firms: The Moderating Role of Family Commitment

Abstract

This study investigates how family commitment moderates whether and how financial knowledge, positive experience with debt suppliers, and economic goal orientation affect owner–managers' attitudes toward debt financing in family firms. Using a sample of 280 erman family firms, we find significant relationships between both financial knowledge and positive experience with debt suppliers and owner–managers' financial attitudes toward debt. Our findings show that family commitment moderates these relationships such that high family commitment increases the impact of prior experience with debt suppliers, though the effect of economic goal orientation is lowered and reversed. Overall, we contribute to research on financial decision making, capital structure, and social capital in family firms.

Notes

1 However, they will not be discussed in more detail as our paper focuses on the underresearched individual‐level determinants of family firm financing.

2 For example, the use of debt often increases the return for the owning family (ROE). This “leverage effect” is based on the reasoning by Modigliani and Miller (1958) and can be formulized as follows: ROE = ROA + (ROA − r) × V, with V = debt‐equity ratio. A higher debt‐equity ratio will leverage a firm's ROE if the return on assets (ROA) is higher than the debt interest rate (r).

3 Although prior experience forms part of an individual's knowledge, it is clearly distinct from subjective or objective knowledge acquired through education and information collection, as similar experiences may not always lead to similar increases in knowledge (Quinones, Ford, and Teachout 1995).

Additional information

Notes on contributors

Christian Koropp

Christian Koropp was postdoctoral researcher at the Institute of Technology Management at the University of St. Gallen and is now working as consultant for small and medium‐sized firms.

Dietmar Grichnik

Dietmar Grichnik is a professor of entreprenurship and director of the Institute of Technology Management at the University of St. Gallen.

Franz Kellermanns

Franz W. Kellermanns is a professor of management at the University of Tennessee and an associated Professor at WHU (Otto Beisheim School of Management) in Germany.