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Capital Structure Adjustment in Brazilian Family Firms

Abstract

We examine the extent to which family companies are different from non-family companies in their leverage ratios and their capital structure adjustment. By applying a dynamic trade-off model to a sample of Brazilian companies for 2003-2013, we show that family companies have higher leverage and slower adjustment speeds in comparison to non-family companies. We argue that family companies’ managers tend toward higher leverage because they are more confident and optimistic than managers of non-family firms. Financial constraints stemming from this high leverage prevent over-leveraged family firms from rapidly adjusting their target capital structure.

Key words:
capital structure; family firms; speed of adjustment; largest ultimate shareholder

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