This study examines the capital-structure decisions of privately held US firms using data from four nationally representative surveys conducted from 1987 to 2003. Book-value firm leverage, as measured by either the ratio of total loans to total assets or the ratio of total liabilities to total assets, is negatively related to firm age and minority ownership; and is positively related to industry median leverage, the corporate legal form of organization, and to the number of banking relationships. In general, these results provide mixed support for both the Pecking-Order and Trade-Off theories of capital structure. What do we know about the capital structure of privately held US firms? The answer is “not much,” as almost all existing empirical studies of the capital structure of US firms have relied upon Compustat data for large corporations with publicly traded securities. 1 Although such large, publicly traded corporations hold the vast majority of business assets, they account for only a small fraction of the number of business entities. In the United States, for example, there are fewer than 10,000 firms that issue publicly traded securities, yet according to the US Internal Revenue Service, there were approximately 30 million small businesses as of
{"title":"What Do We Know About the Capital Structure of Privately Held Firms? Evidence from the Surveys of Small Business Finance","authors":"Rebel A. Cole","doi":"10.2139/ssrn.1013085","DOIUrl":"https://doi.org/10.2139/ssrn.1013085","url":null,"abstract":"This study examines the capital-structure decisions of privately held US firms using data from four nationally representative surveys conducted from 1987 to 2003. Book-value firm leverage, as measured by either the ratio of total loans to total assets or the ratio of total liabilities to total assets, is negatively related to firm age and minority ownership; and is positively related to industry median leverage, the corporate legal form of organization, and to the number of banking relationships. In general, these results provide mixed support for both the Pecking-Order and Trade-Off theories of capital structure. What do we know about the capital structure of privately held US firms? The answer is “not much,” as almost all existing empirical studies of the capital structure of US firms have relied upon Compustat data for large corporations with publicly traded securities. 1 Although such large, publicly traded corporations hold the vast majority of business assets, they account for only a small fraction of the number of business entities. In the United States, for example, there are fewer than 10,000 firms that issue publicly traded securities, yet according to the US Internal Revenue Service, there were approximately 30 million small businesses as of","PeriodicalId":322489,"journal":{"name":"ERPN: Other Investors (Sub-Topic)","volume":"484 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-12-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116538556","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We employ a two-stage, n-firm differentiated products framework to examine the effect of competition for investors' capital, uncertainty, and barriers to entry on private equity fundraising. In the first stage, firms simultaneously decide whether or not they will raise capital. Participating firms each pay an identical, fixed setup cost and subsequently compete in Cournot or Bertrand competition to sell partnership units in their funds. Our results help explain the fundraising process through analyses of equilibrium prices, quantities, firm profits, and the consumer surplus.
{"title":"Determinants of Private Equity Fundraising: An Analysis of Competition, Uncertainty, and Barriers to Entry","authors":"Adam A. Wadecki, David J. Brophy","doi":"10.2139/ssrn.1946968","DOIUrl":"https://doi.org/10.2139/ssrn.1946968","url":null,"abstract":"We employ a two-stage, n-firm differentiated products framework to examine the effect of competition for investors' capital, uncertainty, and barriers to entry on private equity fundraising. In the first stage, firms simultaneously decide whether or not they will raise capital. Participating firms each pay an identical, fixed setup cost and subsequently compete in Cournot or Bertrand competition to sell partnership units in their funds. Our results help explain the fundraising process through analyses of equilibrium prices, quantities, firm profits, and the consumer surplus.","PeriodicalId":322489,"journal":{"name":"ERPN: Other Investors (Sub-Topic)","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-10-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125827228","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper empirically examines the effects of industrial and geographic innovations on firm-level profitability and stock returns due to spillovers. Using the data of U.S. patents and patent inventors, we propose empirical proxies for industrial and geographic spillovers and find a positive relation between innovation spillovers and profitability. In addition, firms with higher industrial or geographic spillovers are found to provide higher stock returns. We also construct an industrial spillover factor and a geographic spillover factor based on sorted portfolios, and find that both carry significant loadings in the stochastic discount factor. Our empirical evidence suggests an important role of innovation spillovers in asset pricing.
{"title":"Technological Innovation Spillovers and Stock Returns","authors":"Po-Hsuan Hsu","doi":"10.2139/ssrn.1458011","DOIUrl":"https://doi.org/10.2139/ssrn.1458011","url":null,"abstract":"This paper empirically examines the effects of industrial and geographic innovations on firm-level profitability and stock returns due to spillovers. Using the data of U.S. patents and patent inventors, we propose empirical proxies for industrial and geographic spillovers and find a positive relation between innovation spillovers and profitability. In addition, firms with higher industrial or geographic spillovers are found to provide higher stock returns. We also construct an industrial spillover factor and a geographic spillover factor based on sorted portfolios, and find that both carry significant loadings in the stochastic discount factor. Our empirical evidence suggests an important role of innovation spillovers in asset pricing.","PeriodicalId":322489,"journal":{"name":"ERPN: Other Investors (Sub-Topic)","volume":"28 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-04-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116433205","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Ji-Woong Chung, Berk A. Sensoy, L. Stern, M. Weisbach
Lifetime incomes of private equity general partners are affected by their current funds' performance through both carried interest profit sharing provisions, and also by the effect of the current fund's performance on general partners' abilities to raise capital for future funds. We present a learning-based framework for estimating the market-based pay for performance arising from future fundraising. For the typical first-time private equity fund, we estimate that implicit pay for performance from expected future fundraising is approximately the same order of magnitude as the explicit pay for performance general partners receive from carried interest in their current fund, implying that the performance-sensitive component of general partner revenue is about twice as large as commonly discussed. Consistent with the learning framework, we find that implicit pay for performance is stronger when managerial abilities are more scalable and weaker when current performance contains less new information about ability. Specifically, implicit pay for performance is stronger for buyout funds compared to venture capital funds, and declines in the sequence of a partnership's funds. Our framework can be adapted to estimate implicit pay for performance in other asset management settings in which future fund flows and compensation depend on current performance.
{"title":"Pay for Performance from Future Fund Flows: The Case of Private Equity","authors":"Ji-Woong Chung, Berk A. Sensoy, L. Stern, M. Weisbach","doi":"10.3386/W16369","DOIUrl":"https://doi.org/10.3386/W16369","url":null,"abstract":"Lifetime incomes of private equity general partners are affected by their current funds' performance through both carried interest profit sharing provisions, and also by the effect of the current fund's performance on general partners' abilities to raise capital for future funds. We present a learning-based framework for estimating the market-based pay for performance arising from future fundraising. For the typical first-time private equity fund, we estimate that implicit pay for performance from expected future fundraising is approximately the same order of magnitude as the explicit pay for performance general partners receive from carried interest in their current fund, implying that the performance-sensitive component of general partner revenue is about twice as large as commonly discussed. Consistent with the learning framework, we find that implicit pay for performance is stronger when managerial abilities are more scalable and weaker when current performance contains less new information about ability. Specifically, implicit pay for performance is stronger for buyout funds compared to venture capital funds, and declines in the sequence of a partnership's funds. Our framework can be adapted to estimate implicit pay for performance in other asset management settings in which future fund flows and compensation depend on current performance.","PeriodicalId":322489,"journal":{"name":"ERPN: Other Investors (Sub-Topic)","volume":"137 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131513769","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Boone and Mulherin (2007) document the private firm sale process and find that the wealth eff ects for target shareholders are comparable in both auctions and negotiations. Since auctions are more costly relative to negotiations, this begs the question of whether firms should use auctions. We hypothesize that sale process is most likely determined by the party that initiates the deal. In this paper, we collect a new variable denoted Initiator which identities the party that approaches the other first to initiate a deal talk. We hypothesize that when an acquirer initiates a deal, the acquirer will prefer a negotiated deal since in an auction other bidders may surface and force the acquirer to pay a higher premium. we find that most negotiation deals are in fact initiated by the acquirers. We also find evidence that the target firms receive higher excess returns in the deals initiated by the acquirers than in the deals initiated by the targets. We also find that most of the target initiated deals use auction, which indicates that the role of auction is to help the seller to find a buyer and increase the bargaining power. This paper serves to further our understanding of how the acquirer and the target interact to determine the deal form and the premium.
{"title":"Deal Process, Asymmetric Bidder and Target Premium","authors":"Kangzhen Xie","doi":"10.2139/ssrn.1329347","DOIUrl":"https://doi.org/10.2139/ssrn.1329347","url":null,"abstract":"Boone and Mulherin (2007) document the private firm sale process and find that the wealth eff ects for target shareholders are comparable in both auctions and negotiations. Since auctions are more costly relative to negotiations, this begs the question of whether firms should use auctions. We hypothesize that sale process is most likely determined by the party that initiates the deal. In this paper, we collect a new variable denoted Initiator which identities the party that approaches the other first to initiate a deal talk. We hypothesize that when an acquirer initiates a deal, the acquirer will prefer a negotiated deal since in an auction other bidders may surface and force the acquirer to pay a higher premium. we find that most negotiation deals are in fact initiated by the acquirers. We also find evidence that the target firms receive higher excess returns in the deals initiated by the acquirers than in the deals initiated by the targets. We also find that most of the target initiated deals use auction, which indicates that the role of auction is to help the seller to find a buyer and increase the bargaining power. This paper serves to further our understanding of how the acquirer and the target interact to determine the deal form and the premium.","PeriodicalId":322489,"journal":{"name":"ERPN: Other Investors (Sub-Topic)","volume":"34 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-01-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121326740","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper I review the role of securitization in the credit markets and in particular the possible contribution of securitization to the credit crisis of 2007-2008. Based on this review I make the following observations: (i) over the last three decades the originate-to-distribute via securitization model has come to dominate the U.S. credit markets; (ii) the originate-to-distribute model has many possible advantages but brings with it a potentially fatal principal agent problem in the credit screening process; (iii) the growing complexity of the securitization process has given rise to a "market for lemons" problem that may well have contributed to the collapse of the market for securitized issues; and (v) the collapse of the mortgage backed securities market resulted in the use of distress prices by financial institutions to mark-to-market their portfolios and this may well have contributed to the panic that resulted in the failure of the affected financial institutions.
{"title":"A Primer on the Role of Securitization in the Credit Market Crisis of 2007","authors":"John D. Martin","doi":"10.2139/ssrn.1324349","DOIUrl":"https://doi.org/10.2139/ssrn.1324349","url":null,"abstract":"In this paper I review the role of securitization in the credit markets and in particular the possible contribution of securitization to the credit crisis of 2007-2008. Based on this review I make the following observations: (i) over the last three decades the originate-to-distribute via securitization model has come to dominate the U.S. credit markets; (ii) the originate-to-distribute model has many possible advantages but brings with it a potentially fatal principal agent problem in the credit screening process; (iii) the growing complexity of the securitization process has given rise to a \"market for lemons\" problem that may well have contributed to the collapse of the market for securitized issues; and (v) the collapse of the mortgage backed securities market resulted in the use of distress prices by financial institutions to mark-to-market their portfolios and this may well have contributed to the panic that resulted in the failure of the affected financial institutions.","PeriodicalId":322489,"journal":{"name":"ERPN: Other Investors (Sub-Topic)","volume":"54 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-01-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122758669","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The credit crisis was sparked by a shock to fundamentals, housing prices failed to rise, which led to a collapse of trust in credit markets. In particular, the repurchase agreement market in the U.S., estimated to be about $12 trillion, larger than the total assets in the U.S. banking system ($10 trillion), became very illiquid during the crisis due to the fear of counterparty default, leaving lenders with illiquid bonds that they did not want, believing that they could not be sold. As a result, there was an increase in repo haircuts (the initial margin), causing massive deleveraging. I investigate this indirectly, by looking at the breakdown in the arbitrage foundation of the ABX.HE indices during the panic. The ABX.HE indices of subprime mortgage-backed securities are derivatives linked to the underlying subprime bonds. Introduced in 2006, the indices aggregated and revealed information about the value of the subprime mortgage-backed securities and allowed parties to buy protection against declines in subprime value via credit derivatives written on the index or tranches of the index. When the ABX prices plummeted, the arbitrage relationships linking the credit derivatives linked to the index and the underlying bonds broke down because liquidity evaporated in the repo market. This breakdown allows a glimpse of the information problems that led to illiquidity in the repo markets, and the extent of the demand for protection against subprime risk.
{"title":"Information, Liquidity, and the (Ongoing) Panic of 2007","authors":"Gary B. Gorton","doi":"10.2139/ssrn.1324195","DOIUrl":"https://doi.org/10.2139/ssrn.1324195","url":null,"abstract":"The credit crisis was sparked by a shock to fundamentals, housing prices failed to rise, which led to a collapse of trust in credit markets. In particular, the repurchase agreement market in the U.S., estimated to be about $12 trillion, larger than the total assets in the U.S. banking system ($10 trillion), became very illiquid during the crisis due to the fear of counterparty default, leaving lenders with illiquid bonds that they did not want, believing that they could not be sold. As a result, there was an increase in repo haircuts (the initial margin), causing massive deleveraging. I investigate this indirectly, by looking at the breakdown in the arbitrage foundation of the ABX.HE indices during the panic. The ABX.HE indices of subprime mortgage-backed securities are derivatives linked to the underlying subprime bonds. Introduced in 2006, the indices aggregated and revealed information about the value of the subprime mortgage-backed securities and allowed parties to buy protection against declines in subprime value via credit derivatives written on the index or tranches of the index. When the ABX prices plummeted, the arbitrage relationships linking the credit derivatives linked to the index and the underlying bonds broke down because liquidity evaporated in the repo market. This breakdown allows a glimpse of the information problems that led to illiquidity in the repo markets, and the extent of the demand for protection against subprime risk.","PeriodicalId":322489,"journal":{"name":"ERPN: Other Investors (Sub-Topic)","volume":"33 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128654312","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Liberalization unleashed a wave of globalization over the period 1980-2007, and the international sector experienced miracle growth. While profits rose to all time highs, global saving exceeded global investment. Long-term interest rates declined to very low levels. After a global housing appreciation, excessive risk in a deregulated financial market led to a financial meltdown. A laissez faire economy led by TNCs was unable to generate enough investment, lacking its publically provided complements: infrastructure, education, health, science, equity, environmental sustainability. While in the US restoring financial markets and reducing the housing market fallout are immediate priorities, economic growth can only be recovered by restoring global investment. Lowering interest rates cannot generate very much investment, nor will consumption flows from fiscal spending. To stimulate the global economy, whole new economic sectors and technologies must be developed in advanced countries, and economic development deepened in underdeveloped countries. Global integration is not synonymous with laissez faire. A global harmonization of taxes is required to fund publically provided goods and to balance incentives between local and international production, reducing imbalances in developed and underdeveloped countries, strengthening global cooperation, and balancing global markets with global governance. Developing the green energy sector is consistent with these aims.
{"title":"Globalization Reform for Sustainable, Global, Economic Development","authors":"David MAYER-FOULKES","doi":"10.2139/ssrn.1317085","DOIUrl":"https://doi.org/10.2139/ssrn.1317085","url":null,"abstract":"Liberalization unleashed a wave of globalization over the period 1980-2007, and the international sector experienced miracle growth. While profits rose to all time highs, global saving exceeded global investment. Long-term interest rates declined to very low levels. After a global housing appreciation, excessive risk in a deregulated financial market led to a financial meltdown. A laissez faire economy led by TNCs was unable to generate enough investment, lacking its publically provided complements: infrastructure, education, health, science, equity, environmental sustainability. While in the US restoring financial markets and reducing the housing market fallout are immediate priorities, economic growth can only be recovered by restoring global investment. Lowering interest rates cannot generate very much investment, nor will consumption flows from fiscal spending. To stimulate the global economy, whole new economic sectors and technologies must be developed in advanced countries, and economic development deepened in underdeveloped countries. Global integration is not synonymous with laissez faire. A global harmonization of taxes is required to fund publically provided goods and to balance incentives between local and international production, reducing imbalances in developed and underdeveloped countries, strengthening global cooperation, and balancing global markets with global governance. Developing the green energy sector is consistent with these aims.","PeriodicalId":322489,"journal":{"name":"ERPN: Other Investors (Sub-Topic)","volume":"143 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-12-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121030469","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We present a method for forecasting sales using financial market information and test this method on annual data for US public retailers. Our method is motivated by the permanent income hypothesis in economics, which states that the amount of consumer spending and the mix of spending between discretionary and necessity items depend on the returns achieved on equity portfolios held by consumers. Taking as input forecasts from other sources, such as equity analysts or time-series models, we construct a market-based forecast by augmenting the input forecast with one additional variable, lagged return on an aggregate financial market index. For this, we develop and estimate a martingale model of joint evolution of sales forecasts and the market index. We show that the market-based forecast achieves an average 15% reduction in mean absolute percentage error compared with forecasts given by equity analysts at the same time instant on out-of-sample data. We extensively analyze the performance improvement using alternative model specifications and statistics. We also show that equity analysts do not incorporate lagged financial market returns in their forecasts. Our model yields correlation coefficients between retail sales and market returns for all firms in the data set. Besides forecasting, these results can be applied in risk management and hedging.
{"title":"Sales Forecasting with Financial Indicators and Experts' Input","authors":"Nikolay Osadchiy, V. Gaur, S. Seshadri","doi":"10.2139/ssrn.1300473","DOIUrl":"https://doi.org/10.2139/ssrn.1300473","url":null,"abstract":"We present a method for forecasting sales using financial market information and test this method on annual data for US public retailers. Our method is motivated by the permanent income hypothesis in economics, which states that the amount of consumer spending and the mix of spending between discretionary and necessity items depend on the returns achieved on equity portfolios held by consumers. Taking as input forecasts from other sources, such as equity analysts or time-series models, we construct a market-based forecast by augmenting the input forecast with one additional variable, lagged return on an aggregate financial market index. For this, we develop and estimate a martingale model of joint evolution of sales forecasts and the market index. We show that the market-based forecast achieves an average 15% reduction in mean absolute percentage error compared with forecasts given by equity analysts at the same time instant on out-of-sample data. We extensively analyze the performance improvement using alternative model specifications and statistics. We also show that equity analysts do not incorporate lagged financial market returns in their forecasts. Our model yields correlation coefficients between retail sales and market returns for all firms in the data set. Besides forecasting, these results can be applied in risk management and hedging.","PeriodicalId":322489,"journal":{"name":"ERPN: Other Investors (Sub-Topic)","volume":"4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-10-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127971055","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study investigates the impact that family ownership has on loan availability and credit terms. Our study differs from existing literature by investigating the impacts of family ownership on loan availability and credit terms in a sample of small and micro Finnish firms. Our results suggest that loan availability becomes weaker when family ownership increases. Collateral requirements increase with management ownership, but contrary to previous studies on large, listed firms we find no effect on interest rates. These results suggest that there are agency costs involved with family ownership and that banks take this into account when lending to these firms. We also find that the impact of other attributes that affect loan availability of credit terms is different for family firms as opposed to non-family firms. Our results suggest that an increase in firm age improves loan availability and reduces collateral requirements only for the non-family firms. We also find that while an increase in profitability improves loan availability for all firms, it reduces interest rates and collateral requirements only for family firms. The results on relationship lending effects suggest that there are no differences in non-family and family firms. When it comes to bank market concentration, it seems that an increase in the number of local banks improves loan availability only for the non-family firms.
{"title":"The Debt Agency Costs of Family Ownership: Firm Level Evidence on Small and Micro Firms","authors":"Mervi Niskanen, Virpi Kaikkonen, J. Niskanen","doi":"10.2139/ssrn.1010905","DOIUrl":"https://doi.org/10.2139/ssrn.1010905","url":null,"abstract":"This study investigates the impact that family ownership has on loan availability and credit terms. Our study differs from existing literature by investigating the impacts of family ownership on loan availability and credit terms in a sample of small and micro Finnish firms. Our results suggest that loan availability becomes weaker when family ownership increases. Collateral requirements increase with management ownership, but contrary to previous studies on large, listed firms we find no effect on interest rates. These results suggest that there are agency costs involved with family ownership and that banks take this into account when lending to these firms. We also find that the impact of other attributes that affect loan availability of credit terms is different for family firms as opposed to non-family firms. Our results suggest that an increase in firm age improves loan availability and reduces collateral requirements only for the non-family firms. We also find that while an increase in profitability improves loan availability for all firms, it reduces interest rates and collateral requirements only for family firms. The results on relationship lending effects suggest that there are no differences in non-family and family firms. When it comes to bank market concentration, it seems that an increase in the number of local banks improves loan availability only for the non-family firms.","PeriodicalId":322489,"journal":{"name":"ERPN: Other Investors (Sub-Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-08-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128784671","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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