Financial decisions as determinants of ownership structure: Evidence from Spanish family controlled firms

The aim of this paper is to analyse how financial decisions influence corporate ownership structure of Spanish family and non‐family controlled firms.

The authors derived two models in line with financial theory, which have then been estimated by using a sample of Spanish companies. Panel data methodology and estimation by the generalized method of moments allow the unobservable heterogeneity to be eliminated and the endogeneity problem controlled.

The main findings are as follows. First, increases in debt lead outside owners and managers to limit the risk they bear by reducing their holdings. Such reductions are also found in family controlled firms. Second, both outside owners and managers are encouraged to increase their stakes in the firm in view of higher dividends. This reaction is also observed in family controlled firms, and it is even stronger in the managers of family controlled firms. Third, outside owners in non‐family firms increase their holdings when a new investment project is undertaken, whereas the reaction of family controlled firms is the opposite. The expected positive effect of investment on insider ownership is only observed in family controlled firms.

When analysing the determinants of corporate ownership structure, the analysis should be controlled for family ownership.

Overall, this paper contributes to the strand of literature on the determinants of corporate ownership structure in two ways: first, by focusing on the role played by financial decisions; and second, by accounting for family control.