Family ownership and speed of adjustment towards targeted capital structures: A study of ASEAN firms

Abstract

This study investigates the effects of family ownership on the speed of adjustment to targeted capital structure among ASEAN firms. Our findings indicate that family firms adjust their capital structure more slowly than non-family firms. This slower adjustment is attributed to the higher costs associated with adjustment, stemming from increased information asymmetry and agency conflicts between family owners and external investors. The impact of family ownership on capital structure adjustment speed is particularly pronounced in family firms with greater family board involvement and higher ownership concentration. Furthermore, our analysis reveals an asymmetric effect of family ownership on adjustment speed at different debt levels, depending on the distance from the targeted capital structure, and distinguishes between overleveraged and underleveraged firms. Overall, the evidence suggests that family ownership plays a critical role in determining the pace at which ASEAN firms align their capital structure with targeted levels.