Transparency and financing choices of family firms

We examine how corporate transparency and financing choices differ for family and nonfamily firms in the S&P 1500 Index. While transparency on average is better for firms in the S&P 500 Index than for firms in the S&P MidCap 400 and S&P SmallCap 600 indices, the improvement is much larger for family firms. Outside the S&P 500, family firms are less transparent than their non-family counterparts, whereas the opposite is true for firms in the S&P 500 Index. Family firms outside the S&P 500 Index have shorter debt maturity and higher debt ratios than large family firms (in the S&P 500) as well as non-family firms. These results on firms’ financial choices are consistent with the notion that small family firms prefer opacity and enjoy control benefits at the cost of overreliance on “monitored finance”, while other firms, especially the large family firms, prefer transparency and the lower cost of external finance.