The Influence of Family Firm Heterogeneity on a Zero-Leverage Ratio

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Abstract
This study investigates why some family firms adopt zero-leverage policies by examining heterogeneity in their goals and governance structures. While prior research has largely focused on differences between family and non-family firms, we highlight the substantial variation within the family firm population itself. Drawing on agency theory and the socioemotional wealth (SEW) perspective, we integrate both economic and behavioural explanations of financing behaviour. Using survey-based measures of SEW importance (SEWi) combined with financial data from 248 Belgian private family firms, we provide the first direct test of SEW as a determinant of zero-leverage. Our results reveal that goal-based heterogeneity matters: certain SEW dimensions increase the probability of maintaining zero leverage, whereas others reduce it. Governance-related factors also play a role, as the presence of a non-family CEO and passive shareholders are positively associated with a zero-leverage stance. Moreover, by distinguishing between zero total debt and zero long-term debt, we capture differences in their respective drivers and interdependence. These findings show that financial conservatism in family firms cannot be explained solely by agency costs or classical finance theories. Instead, heterogeneity in family goals and governance provides a more nuanced understanding of zero-leverage adoption. The study contributes to research on capital structure, family firm heterogeneity, and behavioural finance, offering insights for both scholars and practitioners.

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