Short-term Borrowing For Long-term Projects: Are Family Businesses More Susceptible To 'Irrational' Financing Choices?

Based on a dataset with 1,417 family and 1,195 non-family businesses in Germany, the authors find that family businesses rely more heavily than other enterprises on short term credit in order to finance long term investment and innovation projects. They investigate the reasons underlying these differences in the financing behaviour of family businesses and other businesses. Do family businesses tend to use shorter-term - on average more expensive - sources of financing because they face more financial restrictions than comparable non-family enterprises? Or do they have other motives for their ostensibly irrational financing choices, such as a strong desire to remain independent? They approach answering this research question by simultaneously estimating the determinants of financing behaviour and creditworthiness.

Provided by: Centre for European Economic Research Topic: CXO Date Added: Jan 2011 Format: PDF

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