The imprint effect of initial institutional environments and bank financing in family businesses

The initial imprint embedded in family business origin provides us with favorable support for identifying how past institutional environments and then current governance characteristics influence financing. This study investigates the influence of family business origin on loan borrowing, and finds that restructured family firms (RFFs), which are formed through the restructuring of collective-ownership enterprises, are likely to obtain more loans compared to entrepreneurial counterparts (EFFs). The effect varies with local marketization, family control rights, and intergenerational succession. Our findings suggest that restructured family firms have a sounder modern enterprise system, less information asymmetry, and consequently pose less credit risk, which allows them to access loans more easily. In addition, institutional differences stemming from the origin of the firms affect the composition and cost of bank financing. RFFs outperform EFFs in terms of the size of non-local bank loans and the cost of loans. Overall, this study shows that the institutional environment of family firms at the founding stage has a long-term impact on future financing.