Family Firms and Capital Structure Decisions: Empirical Evidence from Indonesian Listed Firms

Roida, Herlina Yoka (2020) Family Firms and Capital Structure Decisions: Empirical Evidence from Indonesian Listed Firms. Doctoral thesis, University of Central Lancashire.

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The study’s aim is to provide new evidence on the role of a family firm’s specific characteristics, enshrined in the concept of socio-emotional wealth (SEW), in firms’ capital structure decisions with reference to agency and stewardship theories. Family firms in Indonesia rely mostly on banks and short-term debt as a source of funding to meet long-term financing requirements. This situation collectively calls for an investigation into the factors affecting capital structure decision. The study provides new empirical evidence on the determinants of capital structure during the period 2011-2015, covering 160 family firms listed on the Indonesia Stock Exchange.

The general results indicate that SEW dimensions can explain capital structure decisions of family firms in Indonesia. A family’s influence on a firm’s decisions represents the members’ long-term commitment to maintain the sustainability of the company across generations through control and influence. The desire to pass the business to the next generation encourages the families to apply risk reduction strategies to financing decisions by avoiding exposing the business to risk in order to preserve SEW. However, once the control over the firm passes from the founder to the next generation of family members, the desire to maintain the firm within the family has no significant effect on capital structure decisions.

This study contributes to knowledge by examining the determinants of the capital structure specific to family firms in South-East Asia. The financing decisions taken in situations when different generations of the controlling family are in charge as a new approach that distinguishes this study from previous studies. It reveals that financing decisions, apart from being the product of a firm’s general characteristics such as age, size, etc., also reflect family goals focused on preserving the firm’s SEW, resulting in relatively low long-term debt levels sustained protracted period of time and across generations.

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