Family ownership and speed of adjustment towards targeted capital structures: A study of ASEAN firms

Abstract

Utilising a sample of ASEAN firms, we examine the effects of family ownership on firms' speed of adjustment to targeted capital structure. We find that family firms adjust their capital structure more slowly than non‐family firms. This is due to the higher costs of adjustment associated with high information asymmetry and agency conflicts between family owners and external investors. The effect of family ownership on capital structure adjustment speed is more pronounced when family firms have a higher level of family board involvement and higher ownership concentration. There is also an asymmetric effect of family ownership on capital structure adjustment speed at different levels of debt, by the distance from the targeted capital structure, and between overleveraged and underleveraged firms. Overall, evidence in our study suggests that family ownership is a key determinant on how quickly ASEAN firms may adjust their capital structure towards targeted levels.