Exploring the link between family ownership and leverage: a mediating pathway through socioemotional wealth objectives

Abstract

This paper explores the relationship between family ownership and a firm’s leverage from the socioemotional wealth (SEW) theory. We propose that SEW objectives (i.e., family control, long-term horizon, and family firm reputation) might have a mediating effect on the family ownership-leverage link. In addition, we argue that an internal contingency—such as below aspiration performance—may moderate SEW’s influence on the family ownership-leverage relationship as a result of a shift in focus from non-economic to economic goals. Using a sample of European listed firms from 2011 to 2018, we find that the negative impact of family ownership on a firm’s leverage is mediated through SEW objectives. Moreover, our evidence suggests that a negative performance-aspiration gap weakens the mediating influence of these SEW objectives on leverage. Over all, our study reveals that SEW is a key channel which drives family firms’ reluctance to leverage.