The Impact of Family Ownership on the Capital Structure of Palestinian Firms

Abstract

Purpose: This study aims to examine the impact of family ownership on the capital structure with control variables that have been found to affect the capital structure demonstrated in previous studies in the context of the Palestinian market. Design/Methodology/Approach: Panel data (unbalanced) was used to sample non-financial firms listed in the stock exchange from 2010 to 2018. Regression with Driscoll-Kraay standard errors was used to address serial correlation and heteroscedasticity issues and possibly correlate between the groups (panels). Findings: The findings from the T-tests showed that family firms were less leveraged, less in the concentration of ownership, and lesser in their size compared to non-family firm counterparts but were more profitable than non-family firms. Furthermore, regression analysis results showed that the impact of family ownership negatively and significantly affected debt usage in the capital structure (book value of debt). The capital structure (market value of debt) was also positively and significantly affected. Practical Implications: Findings of the study help investors and lenders in the Palestinian market to understand how family firms behave toward employing debt in the capital structure. This may be important in the context of the Palestinian market as family ownership is considered a leading player in ownership structure. Originality/Value: Former studies have focused majorly on the effect of ownership structure on the firm's performance. The impact of ownership structure on the capital structure received less attention in general and particularly family ownership. To our best knowledge, the current empirical research is the first to analyze the resolutions of the capital structure of family companies.