The Determinants of Capital Structure Choice: Evidence from Italian Family Firms

This paper analyses the financing choices of Italian family firms by employing a dynamic linear panel data model. The debt-to-equity ratio of Italian family firms is clearly influenced by its previous dynamics. Italian family-owned firms trade off the costs of financial distress against the tax benefits of debt financing. They also try to take advantage of their current profitability. Italian family firms may also accumulate earnings and may need to invest available cash in tangible fixed assets over time, while they use more debt when the ownership concentration is higher, as blockholders can more easily extract wealth from creditors. The empirical findings may also imply greater difficulties for women in accessing debt finance compared to men, even if the results are not robust. Furthermore, the explanatory variables, influencing the debt-to-equity ratio of Italian family firms in general, play a very similar role in the four categories of Italian family firms - small, large, manufacturing and services. However, the results for Italian family firms in general, and for those in the small and services categories in particular, appear to be more robust in terms of statistical tests, compared to those of the other two groups of enterprises.