Review of the Effect of Family Ownership on Capital Structure

Family-owned companies occupy a large proportion of enterprises all over the world. It is meaningful for people to understand how family ownership may affect firms’ financing strategies. This paper tends to summarize the results of previous studies. However, different scholars reach different results of the correlation between family ownership and debt levels. Some scholars get the result of positive correlation, some get the negative correlation, and others conclude that the correlation does not exist. We apply corporate finance theories such as the pecking order theory, the agency cost theory, and the trade-off theory to previous studies to explain the differences. In the empirical analysis, we find that sample selection bias and omit variable bias exist in previous works. One significant reason that leads to the collisions among previous researchers is the ambiguous definition of family businesses and the disagreement about the definitions. Hence, we conclude several identities of family businesses and make some suggestions to future researchers.