This article presents empirical evidence on the determinants of the financial behavior of small family businesses and their differences from nonfamily small businesses. Taking into account two consolidated financial approaches, (1) the trade‐off theory and (2) the pecking order theory, several hypotheses on the financial behavior of both groups of firms have been tested. By estimating these models through panel data methodology, using a sample of Spanish family businesses together with another control group of nonfamily businesses, we have obtained results confirming that a business's family nature does lead it to employ financial policy different from the rest of businesses. Furthermore, results indicate that growth opportunities, financial distress costs, and internal resources appear to be the main factors that differentiate the financial behavior of family firms from their nonfamily counterparts.

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PurposeThis paper examines how differences in the family involvement in a family business can influence its level of indebtedness. Assuming the influence of family is not the same for all family firms, we consider each company as a combination of the family involvement in three dimensions of the business: ownership, management and governance structure.Design/methodology/approachUsing the partial least squares technique allows us to address the heterogeneity of family firms through an integral concept of family involvement in business that jointly considers the level of family participation in the ownership, management and governance structure of each firm.FindingsOur results demonstrate that the level of family involvement in a family firm, considering the heterogeneity existing within the family business group, directly influences its level of indebtedness. In addition, we find that family involvement in ownership and governance structures individually considered are positively related to the level of indebtedness of the family business.Originality/valueOur findings prove that some indebtedness patterns, which previous literature has described as common to all Spanish family businesses, may actually be valid only for specific family firms with a particular level of family involvement. In addition, the way of measuring family business heterogeneity through our integral concept of family involvement can be replicated by other authors because of the manageability of the items, thus contributing to an increased understanding of the effects of family involvement in firms' development.