Effect of Family Control on Corporate Financing Decisions: A Case of Pakistan

2016:138

This study aims to examine the effect of family control on the corporate financing decision of firms in Pakistan. This sample of study comprises of 100 non financial firms that are listed on Karachi Stock Exchange. This study uses the annual financial data from 2005 to 2012. The study findings of univariate analysis show that a significant difference exists between family and non family firms on the basis of many characteristics of firms. The results of multivariate analysis demonstrate that family firms maintain significantly high “total debt ratio” and “short term debt ratio” as compare to non family firms. There are two reasons of maintaining high debt ratio by family firms as compare to non family firms. First, Family firms don’t want to dilute their ownership and that’s why family firms fulfil their major financing need from debt instead of issuing new share to extract financing from market. Second, family firms in Pakistan use extra cash flows for their private benefits. In result of this, family firm need more external finance (as compare to non family firms) in form of debt to fulfil the financing needs of the firm.