Voting Power, Bankruptcy Risk and Radical Debt Financing Behavior of Family Firms: Empirical Evidences from China

Using a sample of A-share firms during 2001 to 2004, we investigates whether leverage of family controlled firms differs from that of nonfamily controlled firms based on isolating the disturbance of institutional factors. The empirical test reveals that family controlled firms appear to have higher levels of leverage than non family counterparts. Under the weak investor protection and the absence of bankruptcy mechanism, the private firms controlled by family tend to employ high leverage and have incentive to use debt as a means of concentrating voting power outweighs the need to reduce debt in order to mitigate firm risk. Additional analysis indicates that there exist different impacts of the percentage of ownership on debt financing behavior, the percentage of family shareholders present a negative relationship with leverage