POUND OF FLESH? DEBT CONTRACT STRICTNESS AND FAMILY FIRMS

Hillier, D, Martinez Garcia, B, Patel, P, Pindado, J and Requejo, I (2018) POUND OF FLESH? DEBT CONTRACT STRICTNESS AND FAMILY FIRMS. Entrepreneurship: Theory and Practice, 42 (2). pp. 259-282.

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Abstract

While past work finds support for both higher and lower cost of debt among family firms, whether lower shareholder–creditor agency conflicts in family firms translate into greater ex-ante contracting efficiency (i.e., lower debt contract strictness) remains unexplored. Drawing on a shareholder–creditor agency framework and costly contracting theory, creditors, expecting firm value maximization rather than shareholder value maximization from family firms, may offer less strict debt contracts to increase contracting efficiency. We find in a sample of 716 publicly traded U.S. firms (2001–2010) that family firms have less strict debt contracts, which are even less strict when family firms have higher asset tangibility. Although increases in R&D investments could lead to more pronounced shareholder–creditor agency conflicts, given family firms' preferences for lower risk and growth, debt contract strictness among family firms is not positively associated with higher R&D intensity.

Item Type:	Article
Uncontrolled Keywords:	debt contracts, family firms, financil covenant slack, asset tangibility, R&D
Depositing User:	Symplectic Admin
Date Deposited:	27 Mar 2017 06:30
Last Modified:	19 Jan 2023 07:08
DOI:	10.1177/1042258717748933
Related URLs:	Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3006643