Behavior of Family Firms in Financial Crisis: Cash Extraction or Financial Support?

In this study we show that family owners of public corporations have greater incentive to preserve the continuity of the firms during financial crisis relative to short-term oriented parties in widely held public corporations. In this regard, we show that during financial crisis family firms report higher performance, experience more financial support from their shareholders, report lower investment cuts, greater level of cash and have lower leverage ratios, relative to non-family firms. These findings are in line with predictions of socioemotional wealth, because show that family owners have greater incentive to retain control over the firm and to preserve the continuity of their firms during financial crisis relative to short-term oriented parties.