Abstract

This paper investigates whether leverage of family controlled firms differs from that of nonfamily controlled firms. The empirical results indicate that family firms have relatively lower levels of leverage. There are two main characteristics of families, the incentive of concentration of control and risk controls, are likely to have an impact on leverage decision. Family controlled shareholdings and the levels of leverage are in an inverse U-shape relationship. When the family controlled shareholdings lower than 25%, the incentive for family shareholders to concentration of control will be greater than that of risk controls. Thus, family controlled shareholdings and the levels of leverage are in a positive relationship. But when the family controlled shareholdings exceed 25%, the incentive of risk controls is relatively greater. Debt-financing will be avoided, and family controlled shareholdings and the levels of leverage are in a negative relationship.