Family Firm Governance and Financial Policy Choices in Newly Public Firms

Manuscript TypeEmpirical Research Question/IssueUsing agency theory and socioemotional wealth perspective as the theoretical framework, we evaluate the extent to which financing choices subsequent to going public and their economic consequences differ for family firms relative to non-family firms. Research Findings/InsightsOur results suggest that family firms maintain higher post-IPO leverage and longer debt maturity structure relative to non-family firms. Further, family firms raise less external capital subsequent to going public relative to non-family firms. The reluctance of family firms to raise post-IPO capital, however, results in higher investment sensitivity to internal cash flows and consequently inefficient investment. In addition, family firm financing choices differentially influence various facets of post-IPO performance. Theoretical/Academic ImplicationsThis study suggests that agency conflicts among firm stakeholders as well as socioemotional wealth considerations are important determinants of family firm financing behavior subsequent to going public. Further, ownership structure is an important determinant of the extent IPO firms capitalize on the opportunity to raise capital subsequent to going public to finance investments. Practitioner/Policy ImplicationsOur results offer insights to entrepreneurs, managers, venture capitalists, and other capital market participants with regard to the link between firm ownership structure and the economic benefits of going public