The preferred usage of equity and debt financing in family businesses: evidence from Czech Republic
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DOIhttp://dx.doi.org/10.21511/imfi.17(3).2020.03
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Article InfoVolume 17 2020, Issue #3, pp. 27-39
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Funding dataFunder name: TECHNOLOGY AGENCY OF THE CZECH REPUBLIC TACR ETA2 (STA0218TL020)Funder identifier: 72050365Award numbers: TL02000434
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Czech family businesses are currently experiencing their first changeover of generations in history. The first generation (founders or successors), two or more generations collectively operate in management and administrative authorities. This article aims to compare and evaluate preference for use of debt or equity financing in family businesses with the differing involvement of generations and the diversity of its allocation for the specific need of the company’s growth. This empirical study is performed based on a qualitative analysis of 245 family businesses. Hypotheses were confirmed using the Pearson correlation coefficient. This study confirms the dependence of equity and debt financing on the number of generations in management. This brings differing perspectives, opinions, and practices for financial management in the sense of a preference for debt or equity financing. The need for debt arises at the moment of compensating the transfer of ownership between generations. The analysis results indicate that family businesses managed by one generation prefer equity financing, companies managed by first and second generations prefer debt financing, and companies managed by second and third generations prefer equity financing.
Acknowledgment
The result was created in solving the project TA ČR ETA 2 (STA02018TL020) “Family businesses: Value drivers and value determination in the process of succession”, TL02000434. We are grateful also to representatives of enterprises who were willing to participate in this research.
- Keywords
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JEL Classification (Paper profile tab)G31, G32, M21
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References60
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Tables6
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Figures1
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- Figure 1. Comparison of equity and debt financing in 2014 – 2018 by the representation of the number of generations
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- Table 1. Frequency of family businesses by legal form
- Table 2. Description of the study sample
- Table 3. Real need for capital
- Table 4. Representation of the number of generations
- Table 5. Real need for capital concerning the number of generations
- Table 6. Correlation analysis between generations and the need for funds
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