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date: 05 March 2021

Abstract and Keywords

This article has two parts. The first part provides a brief literature review on existing theoretical and empirical research in the capital structure of family firms. It argues that there are several important aspects of being a closely held family firm that have opposing impacts on the optimal choice of debt leverage. One important feature is that families are typically nondiversified investors that not only have most of their wealth tied to the company but also often their human capital. Another salient feature is that families want to have control over their company. This control objective restricts the willingness to raise new capital outside the family and therefore often results in a stronger dependence on banks and various forms of debt instruments. The second part provides an empirical analysis of the leverage structure of family firms in Denmark. Using a unique data set the family can be tracked behind each of the 200,000 Danish firms and the firms categorized into family or nonfamily firms. Three definitions of family firms are used in the analysis: multiple family members owning the firm; a family owner is also CEO; and there has been at least one family succession in the firm.

Keywords: capital structure, family firms, debt leverage, nondiversified investors, human capital, new capital

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