Review of Corporate Finance > Vol 2 > Issue 4

Can Family Involvement Be a Substitute for Executive Inside Debt in Lowering the Cost of Bank Loans? A Behavioral Agency Perspective

Rong Ding, Neoma Business School, Department of Accounting, Control and Legal Affairs, France, rong.ding@neoma-bs.fr , Mingzhi Liu, I.H. Asper School of Business, University of Manitoba, Canada, mingzhi.liu@umanitoba.ca , Yuan Wang, Gerald Schwartz School of Business, St. Francis Xavier University, Canada, ywang@stfx.ca , Zhenyu Wu, I.H. Asper School of Business, and IG Wealth Management Chair in Leadership Research, Professor of Entrepreneurship and Finance, University of Manitoba, Canada, zhenyu_wu@umanitoba.ca
 
Suggested Citation
Rong Ding, Mingzhi Liu, Yuan Wang and Zhenyu Wu (2022), "Can Family Involvement Be a Substitute for Executive Inside Debt in Lowering the Cost of Bank Loans? A Behavioral Agency Perspective", Review of Corporate Finance: Vol. 2: No. 4, pp 819-860. http://dx.doi.org/10.1561/114.00000031

Publication Date: 07 Dec 2022
© 2022 R. Ding, M. Liu, Y. Wang and Z. Wu
 
Subjects
Corporate finance: Agency theory and information,  Corporate finance: Corporate financing,  Family-owned firms
 
Keywords
JEL Codes: G30
Family involvementexecutive inside debtcost of bank loanaspiration level
 

Share

Login to download a free copy
In this article:
Introduction 
Literature Review and Hypotheses 
Methodology 
Empirical Results 
Conclusions 
References 

Abstract

Using a sample of listed companies in the U.S. between 2007 and 2016, we explore the joint effects of executive inside debt (EID) and family involvement on the cost of bank loans. The empirical results indicate that the mitigating effect of EID on the cost of bank loans is less pronounced in family firms than in their non-family counterparts. We also document that (1) the mitigating effect of EID on the cost of bank loans is strengthened when a firm’s performance is lower than its aspiration level and (2) the moderating effect of family involvement is significant when firm performance is above its aspiration level. Collectively, our findings support the behavioral agency prediction that family involvement shapes firms’ risk-taking preference, which acts as a substitute for EID in decreasing the cost of debt.

DOI:10.1561/114.00000031

Companion

Review of Corporate Finance, Volume 2, Issue 4 Special Issue on Family Firms: Articles Overiew
See the other articles that are part of this special issue.