Financial Decision-Making Beyond Economic Considerations: A Strategic View for Family Firms in India

Abstract

The study examines economic and non-economic endeavors to explore the association between family involvement and financial decisions within family firms. The non-economic factors of a family drive the need to analyze the impact of socioemotional factors on the financial policies of the family firms. The study explores the impact of family ownership, family management, and family control drawn from agency theory and socioemotional wealth perspectives on the financial decisions of family firms. Our findings in support of the socioemotional wealth perspective show a positive relationship between family ownership and debt financing with a desire to finance growth and avoid control dilution, with an increase in the level of debt. However, the involvement of family members in management and the top management team leads to an adverse relationship between family ownership and debt level, exhibiting the risk-averse behavior of a firm, which drives firms to reduce debt levels. Overall, our findings suggest that the perceptions of the socioemotional wealth theoretical paradigm are important in determining capital structure decisions in family enterprises. The results are resilient to potential endogeneity and heterogeneity difficulties, which may assist scholars and practitioners in assessing capital structure decisions in emerging economies.

1. Introduction

Founding family members or their successors are the most prevalent shareholders, contributing considerably to the global gross domestic product (GDP) (Lardon et al., 2017; Tran & Nguyen, 2023). Family members actively participate in management and governance operations to ensure family control, long-term survival, and family reputation in family firms (FFs). The primary intention of such firms is to transfer the ownership of the company to subsequent generations (Baixauli-Soler et al., 2021). FFs are identifiable by characteristics such as dominant ownership among family members and family values within the firm. “It is based on complete surrendering of the individuality of the family members to the welfare of the family and its activities” (Sharma & Srinivas Rao, 2000). FFs are unique enterprises where non-economic factors significantly shape strategic decisions (Boumlik et al., 2024). The results on FFs and their financial decisions are inconsistent. One stream of literature states that FFs are risk-averse and have substantial incentives to conserve family control and the family reputation within the firm (e.g., Avabruth & Padhi, 2023; Jansen et al., 2023; Khurana & Sharma, 2023). Their desire to avoid the dilution of control inhibits such firms from relying on external funds, which adds to external supervision in the management and involves insolvency or bankruptcy risk. Conversely, FFs may be risk seekers in order to retain family control, favoring an increase in debt over equity to preserve family control. Thus, in FFs, financial decisions are driven by loss aversion relative to risk aversion, which stimulates the capital structure choices of FFs (Tran & Nguyen, 2023).

There are several current studies on the capital structure of FFs, being found in the literature from not only developed countries such as those in Europe and Singapore but also developing countries like India and China (Amin & Liu, 2020; Ampenberger et al., 2013; Chakraborty, 2018; Feng et al., 2020). However, most studies only examine the economic motives that drive financial decisions, which do not account for non-economic consideration and heterogeneity within FFs (Avabruth & Padhi, 2023; Boumlik et al., 2024). For instance, only some articles examine the impact heterogeneity among family enterprises, including governance and industrial consideration on the financial decisions of the FFs. In Appendix A, we show the research gap in the literature in tabular form so that it can be seen clearly. The existing corporate finance research studies heavily rely on conventional theories, such as agency, pecking order theories (POT), and trade-off theories (TOT) (Harris & Raviv, 1990; Jensen & Meckling, 1976; Myers & Majluf, 1984) when comparing the financial policies of family firms (FFs) and non-family firms (NFFs) (Ampenberger et al., 2013; Anderson & Reeb, 2003). The outcomes of these investigations are inconsistent since conventional theories are inadequate for assessing FFs’ capital structure as they account for economic consideration only, ignoring the significance of non-economic considerations, which are critical factors for formulating capital structure decisions in consideration of FFs’ financial behavior and family centered goals (Boumlik et al., 2024; Michiels & Molly, 2017).

Such non-economic considerations driven from behavioral agency theory are recognized as “socioemotional wealth” (Gomez-Mejia et al., 2007). Socioemotional Wealth (SEW) can be outlined as “the array of non-financial benefits specially associated with the well-being and affective needs of family members that are derived from operating a business enterprise” (Debicki et al., 2016, p. 48). From the SEW perspective, FFs accord non-economic consideration as the primary factors of FFs’ behavior in shaping their strategic decisions (Baixauli-Soler et al., 2021; Molly et al., 2019). The preservation of SEW significantly impacts the management strategy peculiar to FFs, which leads to choices prioritizing non-economic motives (Gomez-Mejia et al., 2011). In conjunction with the variation between FFs and NFFs, the impact of SEW on capital structure choice may also differ within the domain of FFs (Berrone et al., 2012). When evaluating the financial policies of FFs, most prior research has neglected the heterogeneous nature of FF’s behavior (De Massis et al., 2013) and the non-economic characteristics intrinsic to these organizations (Gomez-Mejia et al., 2011). Only a limited number of studies have used agency theory and the SEW perspective to investigate the effect of family involvement on capital structure choices in the developed economies (Comino-Jurado et al., 2021; Poletti-Hughes & Martinez Garcia, 2022). There are not many studies on the impact of heterogeneity across FFs on debt financial decisions in emerging economies like India. Emerging economies, however, provide unique institutional environments represented by dominant ownership, enabling the testing of prevalent theories regarding capital structure decisions in FFs. While dominant ownership is beneficial in an unfavorable legal environment, it may encourage dominant stockholders to prioritize their individual interests over the pursuits of minority stockholders (Chakraborty, 2018). Firms in developing economies are typically family owned or family controlled firms (Ghalke et al., 2023). These companies face challenges in transferring their stake and authority to non-family members, which may influence capital structure decisions. “Despite the increasing attention to the behavioral financing approach, it remains an under-researched topic that has much potential in analyzing financing decisions in family firms” (Michiels & Molly, 2017, p. 379). To bridge this void, many researchers study the impact of family centric objectives on debt using SEW dimensions that have not been validated by previous research (Michiels & Molly, 2017) with respect to growing economy. Our paper endeavors to examine the validity of theoretical arguments that are useful to comprehend the capital structure decisions of FFs. Specifically, in our paper we scrutinize the effect of SEW on the financial decisions of a firm.

SEW is a multifaceted and intricate concept. Berrone et al. (2012) proposed a five-dimensional model to assess SEW, termed the FIBER, which represents “Family control and influence, Identification of family members with the firm, Binding social ties, Emotional attachment of family members, and Renewal of family bonds to the firm through dynastic succession”. “Family control and influence” is the control that family members exercise on strategic choices within FFs to retain control and maintain SEW within FFs. It is widely recognized as one of the features that distinguish FFs from NFFs (Burgstaller & Wagner, 2015). This impact is more substantial when family members become involved in the administration of the firm. The family readily enforces “family centered goals” while pursuing non-economic goals and meeting long-term survival goals. Consistent with preceding analyses by Comino-Jurado et al. (2021) and Molly et al. (2019) that represent the distinctive governance characteristics of FFs, our study contributes to the current literature to study the effect of one of the aspects of SEW (Berrone et al., 2012), i.e., “Family control and influence” on capital structure choices in the framework of an emerging economy. Using this dimension, our study illustrates the following determinants to capture the influence of heterogeneity among FFs on debt financing decisions: (i) family ownership, (ii) family management, and (iii) family control in line with Ampenberger et al. (2013) as a criterion to describe family control and influence. Ownership, management, and control distinguish FFs from NFFs. These factors impact how FFs decide on their financial structure and long-term goals (Chua et al., 1999). Yet only some studies include non-economic factors when shaping the financial structure of FFs, particularly in emergent countries. This paper will assist in the development of knowledge of the behavioral pattern based on non-economic factors, namely the dimension from Berrone et al. (2012), in determining the capital structure for listed FFs in India. We employ the definition of family involvement outlined in the prior research by Ghalke et al. (2023) and Singla et al. (2014) for a sample of FFs in India where family ownership is classified by the promoters’ equity stake; family management is classified by promoters who hold executive management positions; and family control is classified by promoters who hold board positions.

Reviewing the existing literature, we have identified a dearth of studies that examine the influence of heterogeneity among FFs on financial decision-making in emerging economies such as India. Given the existing research void, the current study makes a significant contribution by investigating the influence of family participation (whether as proprietors, managers, or top-level managers) on the financial decisions of FFs. Consequently, the study seeks to address the subsequent research inquiries:

RQ1. What is the impact of family involvement on the financial decisions of the FFs?

RQ2. How do family management and family control moderate the association between family ownership and the capital structure of an FF?

The outcomes of the paper advocate that family ownership has a positive impact on debt, suggesting that FFs are loss-sensitive rather than risk-averse in an attempt to preserve SEW within the firm. However, when family members are involved in management or participate in the top management team (TMT) the association with debt in the capital structure of FFs becomes negative. This shows that family control and greater risk aversion among family directors reduce the need for indirect credit control over management using more debt. In addition, consistent with the outcomes of Bacci et al. (2018) and Tran and Nguyen (2023), we identified an inverted U-shaped pattern amongst ownership dispersion among family stockholders and debt from the SEW perspective. The results show that debt is lower at initial levels of family ownership, increases with higher levels of family ownership, and decreases with a subsequent increase in family ownership.

Our study contributes to the current state of knowledge regarding capital structure of family firms. First, to the best of our knowledge, there are limited studies that scrutinizes the impact of family involvement and heterogeneity within FFs in support of behavioral theoretical paradigms (such as SEW) on the capital structure of an emergent economy. This study adds, to the current body of literature, the behavioral aspects of FFs in formulating their capital structure in a desire to preserve SEW in the context of an emergent economy. Second, our article investigates how non-economic considerations such as family centric aspirations and risk preferences affect the capital structure choices in FFs. Third, our study examines how ownership dispersion among family members affects the capital structure from a SEW perspective, demonstrating that more debt is taken at earlier levels of an increase in the family ownership to maintain family control; however, once the SEW is achieved, FFs generally prefer to decrease the debt with an increase in the level of family ownership to evade financial risk within the firm. The outcome of the study advocates that family ownership positively impacts debt finance, suggesting that FFs are loss-sensitive rather than risk-averse in the preservation of SEW with the firm.

The rest of the paper is organized as follows. Section 2 describes the related literature and presents the statement hypothesis. Section 3 details the data sources and research design. Section 4 summarizes the findings relating to family involvement and capital structure decisions. Section 5 includes a summary of the article.

2. Literature Review and Hypotheses Development

FFs differ from NFFs in various aspects, primarily in non-economic elements, such as SEW. These elements portray critical aspects in making financial choices among FFs. FFs differ in ownership structure and the agency cost relationships. The involvement of family members in management and TMT aligns the goals of the managers with the firm, demonstrating a convergence of interests among FF owners and the managers of the firm. Considering the impact of such an ownership structure, and agency cost relationships amongst shareholders and creditors in FFs, there has been an evolution in the financial literature on financial policies of FFs in recent years (Molly et al., 2019; Tran & Nguyen, 2023). Significantly, the scholarly literature began to emphasize the unique risk-averse nature of FFs as compared to NFFs (Baixauli-Soler et al., 2021), demonstrating the efficacy of FFs in preserving family control. Despite a number of studies on capital structure, which emphasize the economic aspects of financial decisions (Amin & Liu, 2020; Ampenberger et al., 2013), there is a scarcity of research that illustrates the impact of non-economic consideration and heterogeneity in FFs on capital structure decisions. Conventional research predominantly focuses on financial theories such as the POT and TOT (Michiels & Molly, 2017). These theories primarily concentrate on capital structure choices through the lens of financial considerations, neglecting to account for the substantial influence that non-economic factors have on strategic decisions within FFs (Muñoz-Bullón et al., 2023). However, studies of recent years extend the scope by incorporating psychological viewpoints, such as the SEW perspective from a non-economic perspective, while formulating the financial structures of the FFs (Blanco-Mazagatos et al., 2024; Comino-Jurado et al., 2021).

Our study aims to examine the unique characteristics of FFs that impact their financial decision-making, emphasizing their simultaneous pursuit of financial success and social welfare. FFs consider familial elements, such as cultural norms, personal preferences, and attitudes related to risk, control, and growth, together with financial objectives (Baixauli-Soler et al., 2021). Concerning the demand for debt, FFs evaluate their capital structure by balancing several factors. To prevent ownership dilution and a decline in family influence, they frequently choose debt financing over the issuance of new shares, thus protecting their SEW within FFs (Tran & Nguyen, 2023). Conversely, FFs prefer lower debt due to a substitution effect amongst family control and indirect creditor control to maintain the influence of family members in top managerial positions over strategic choices (Jara et al., 2018).

2.1. Family Ownership and Capital Structure

FFs are characterized by the majority shareholding held by family members, resulting in a distinct financial structure as compared to NFFs (Comino-Jurado et al., 2021; Tran & Nguyen, 2023). FFs demonstrate the presence of dominant shareholders with specific incentives to optimize financial gains and supervise management decisions. Family proprietors allocate a significant portion of their capital to the firms; generally, they lack corporate diversification and exhibit risk-averse behavior that is advantageous to the companies (Tran & Nguyen, 2023). Swanpitak et al. (2020) argue that FFs’ characteristics, in addition to value increment, including long-term survival and long-term associations, reduce the agency problems amongst owners and creditors, which may help such firms to alleviate lender concerns, resulting in lower cost of debt (Gao et al., 2020). González et al. (2013) and Tran and Nguyen (2023) demonstrate significant concentration of insider shareholding to greater debt at a lower debt cost to the endure survival and reputation impact in FFs. FFs retain control of their firms, using debt to preserve SEW within the firms (Bacci et al., 2018). Baek et al. (2016) state that the instances where family members hold the majority of shares but do not actively participate in management are likely to prefer greater debt in their financial structure. This serves as an alternative to preserve control of the firm through creditor supervision and to limit managerial opportunism. Furthermore, SEW substantially impacts strategic decisions inside family enterprises. Thus, these arguments result in the following hypothesis:

H1a. 

There is a significantly positive association amongst family ownership and debt in family firms.

2.2. Moderating Impact of Family Involvement on Capital Structure

When family members govern a company, the authority within the firm increases their desire to protect the SEW of the firm (Jansen et al., 2023). Baek et al. (2016) identified a favorable association amongst family ownership and debt, which they attribute to the lower costs of borrowing and an aptitude to preserve family control. However, when family control is coupled with CEO power, the desire to preserve SEW mitigates the positive relationship with debt, reducing the risk of bankruptcy in correspondence to an increment in the level of debt. Baixauli-Soler et al. (2021) found a negative association amongst preserving SEW and debt when a family CEO moderates this relationship. In contrast, Molly et al. (2019) found an insignificant association amongst family centric aspirations and debt. However, they found a negative relationship when family members on the board mediate the association amongst family centric goals and debt finance. Consequently, family members holding managerial or board positions, along with their commitment to preserve SEW, indicate a tendency for an adverse association amongst family ownership and debt finance (Muñoz-Bullón et al., 2023). This effect is particularly pronounced when family control or management influences the association amongst family ownership and debt financing. We thus hypothesize the following:

H1b. 

Family management significantly moderates the association amongst family ownership and debt finance in family firms.

H1c. 

Family control significantly moderates the association amongst family ownership and debt finance in family firms.

2.3. Ownership Dispersion and Capital Structure

Firms at a lower level of ownership tend to be more reluctant to dilute control through equity issuance due to a phenomenon known as the “non-dilution entrenchment effect” (Du & Dai, 2005). Within the SEW framework, the choice between debt and equity depends on intention to preserve control within the family (Poletti-Hughes & Williams, 2019). Consequently, FFs with higher ownership concentration make different financing decisions to align with the wealth maximization objective and effective organizational structure of the firm (Mbanyele, 2020). However, as the threat of losing control diminishes, firms become more conservative towards debt over equity to minimize financial distress and avoid creditor oversight (Tran & Nguyen, 2023). The prior literature indicates that family ownership and debt correspond in an inverted U-shaped pattern (de La Bruslerie & Latrous, 2012; Poletti-Hughes & Martinez Garcia, 2022). However, Chakraborty (2018), in contrast to the aforementioned perspective, identified a U-shaped association amongst debt and dominant ownership. At lower ownership levels, a congruence is observed between owners and managers, which incentivizes companies to embrace lower debt levels. However, managers, due to entrenchment behavior, may seek to inflate ownership and deter takeover attempts by increasing debt as ownership concentration increases. Considering the above discussion, an alternative hypothesis is developed:

H2. 

There is a significant non-linear association amongst family ownership and debt finance in family firms.

2.4. Family Management and Capital Structure

Family involvement in the management enables the family to influence corporate financial decisions (Boumlik et al., 2024). A review of the literature shows inconsistent findings regarding family management and debt (Ampenberger et al., 2013; Comino-Jurado et al., 2021; Miah et al., 2023). Some research indicates a negative association between family managed firms and debt to avoid external supervision when owners themselves manage the firms (Baixauli-Soler et al., 2021). Owners and executives of family managed enterprises are thought to have a significantly greater mutual interest in the family managed firms (Jensen & Meckling, 1976). Managers act as stewards in the best interest of the company to reduce financial risk in the future; therefore, family managed firms have a negative view of debt financing as a control mechanism (Ampenberger et al., 2013; Miah, 2019; Alam & Miah, 2024). However, when family control is compromised, or debt is accessible at a lower cost of capital than alternative forms of financing, family managed firms may have a favorable attitude towards debt. FFs may also utilize debt to minimize the misuse of free cash flow and safeguard SEW. For example, López-Delgado and Diéguez-Soto (2020) found evidence that the participation of family members in the TMT will increase the use of debt financing to protect SEW in the FFs. Our research focuses on reducing this ambiguity and establishing evidence for developing nations such as India. The considerations above justify both family managed firms encouraging and discouraging debt. Hence, the overall outcome is unpredictable. We thus hypothesize the following:

H3. 

There is a significantly negative association amongst family management and debt finance in family firms.

2.5. Family Control and Capital Structure

Family control is a key characteristic that distinguishes FFs from NFFs when making strategic decisions (Bacci et al., 2018). Holding a position in the TMT allows families to exert control. Family control and influence is regarded as critical to SEW and highly valued by family members in the FFs (Boumlik et al., 2024; Zellweger et al., 2012). The seminal work of Jensen and Meckling’s (1976) underscore the role of the ownership–control dichotomy in financial decision-making. In emerging economies, ownership is often familial (Chakraborty, 2018), reducing agency issues amongst owners and managers but intensifying conflicts amongst majority and minority shareholders (Swanpitak et al., 2020). Previous research studies have highlighted discrepancies in the association between family control and debt financing in FFs. On the one hand, FFs motivated by the need to protect SEW may choose to take higher debt to maintain family control (Poletti-Hughes & Martinez Garcia, 2022). In contrast, FFs that are extremely sensitive to SEW may choose to have lower debt in the capital structure to reduce the default risk in association with higher debt and avoid loss of control within the firm (Baixauli-Soler et al., 2021). SEW provides a valuable approach to illustrate the financial behavior that FFs exhibit in their capital structure decisions. FFs utilize their board positions to achieve their goals, including maintaining family control and passing on family legacy across generations. Consequently, we suggest the following hypothesis:

H4. 

There is a significantly negative association amongst family control and debt finance in family firms.

3. Data and Methodology

3.1. Sample Selection

The dataset comprises non-financial FFs in India from 2014 to 2023. Data on the ownership, board of directors, and financial considerations are obtained from the Centre for Monitoring the Indian Economy (CMIE) Prowess IQ database. Several scholars utilize this database to obtain data on both publicly and privately traded companies (Avabruth & Padhi, 2023). Corporations with missing data for any variable were excluded. The final data collection includes an aggregate of 6549 firm-year data elements, representing 913 enterprises. According to Indian regulatory standards, an FF is defined using the promoters’ stake in the firm. Specifically, a firm is recognized as an FF where a promoter or group of promoters owns more than 20% of a company’s equity share capital in a firm (Fuad et al., 2021; Ghalke et al., 2023). The Prowess IQ database gives information on promoter equity shareholdings in India.

3.2. Measuring Family Involvement in the Firm

The study uses promoter shareholding to measure family ownership. Family involvement in management is evaluated based on whether promoters hold an executive managerial position (classified as family management) or a position in the TMT (classified as family control) (Ghalke et al., 2023). The study employs a dummy variable, “Family management”, with a value of one when the promoter holds an executive managerial position (Singla et al., 2014). The study employs a dummy variable, “Family control”, with a value of one where the promoter possesses a position in the TMT in the firm (Fuad et al., 2021). Appendix B shows the variables utilized in the study to demonstrate the impact of family involvement in making financial choices among FFs.

3.3. Research Design

The study uses a panel data regression model to account for the heterogeneity caused by individual and time-specific factors. The study examines the impact of family involvement on the financial structure of FFs in an emerging economy. We use Equation (1) to evaluate the impact of family involvement in shareholding, executive management positions, and TMT, while also considering the influence of other variables on the FFs’ financial decisions.

Yit = β0 + αkYit−1 + βk FI + ϑk CG + φk Xit + δk INDit + γk Yt + (µi + εit)…

(1)

In our analysis, Yit denotes the total debt of the firm at a given time. FI is a group of determinants indicating the level of family involvement classified as family ownership, family management, and family control, while CG represents a group of determinants associated with corporate governance controls. Xit is a set of control variables, accounting for financial and idiosyncratic factors. The equation includes industry dummies (INDit) and time dummies (Yt) to control industry-specific and time-specific effects. The symbol µi denotes the component of the individual stochastic effect.

Primarily, this model demonstrates two benefits for our research purpose. First, it allows us to control the heterogeneity resulting from individual differences (Himmelberg et al., 1999). This includes unobservable time constant variables that may influence the financial structure of the FFs. Second, the model attempts to handle the problem of endogeneity arising from the association between independent variables and error terms (Azofra et al., 2020). However, this situation is difficult to control because of the association amongst the lagged variable of debt and the error term (t − 1) in the dynamic panel model. Following the research methodology used in the prior research studies (Khurana et al., 2024; López-Delgado & Diéguez-Soto, 2020), our study uses the generalized method of moments (GMM) to address endogeneity and reverse causality difficulties among explanatory variables (Avabruth & Padhi, 2023; Poletti-Hughes & Martinez Garcia, 2022). Furthermore, the prior study of Poletti-Hughes and Martinez Garcia (2022) uses a two-step system GMM technique to account for endogeneity and measurement error (Arellano & Bond, 1991; Blundell & Bond, 1998). This technique accounts for endogeneity by using lagged dependent and independent variables. To measure the instruments’ validity, this study employs the Hansen coefficient. Hansen tests for a lack of association between the instruments and the error term. This study also explores the first- and second-order error terms that Blundell and Bond (1998) proposed for autocorrelation and serial correlation.

4. Results

4.1. Descriptive Statistics

This study employs a univariate technique to compare the individual effects of independent variables among family managed/family controlled firms and non-family managed/family controlled firms.

Table 1. Descriptive statistics.

Variables	Pooled		Family Managed/Family Controlled Firms		Non-Family Managed/Non-Family Controlled Firms		F-Test
	Mean	Standard Deviation	Mean	Standard Deviation	Mean	Standard Deviation
Observations	6549	6549	2500	2500	4049	4049
Debt	0.5541	0.2459	0.5456	0.2356	0.5591	0.2519	4.6900 **
Family ownership (%)	54.8300	0.1444	56.3983	0.1353	53.8625	0.1490	47.9700 ***
Firm size	6.5576	1.8242	6.9923	1.6662	6.2829	1.8655	237.8380 ***
Profitability (%)	6.2099	0.0691	6.8879	0.0682	5.7896	0.0694	39.1970 ***
Tangibility	0.2903	0.2001	0.2998	0.1923	0.2907	0.2048	0.0300
Growth opportunity	1.0218	4.7224	1.0473	4.5604	1.0059	4.8196	0.1190
Firm age	3.3876	0.3754	3.3919	0.3861	3.3849	0.3686	0.5330
NDTS	0.0254	0.0183	0.0261	0.0181	0.0250	0.0184	6.1570 **
Liquidity	1.6604	0.9145	1.6731	0.9054	1.6524	0.9200	0.7930
Outside directors (%)	43.7810	0.2670	43.9036	0.1970	43.7206	0.3023	0.0730
Board size	1.2940	0.6501	1.5112	0.5055	1.1602	0.6919	483.6120 ***

Notes: The table shows the mean values, standard deviation, and the F-statistics of the of the study variables. In the last column *, **, *** indicate statistical significance at the 0.10, 0.05, and 0.01 levels, respectively.

shows the results obtained from the F-statistics test to compare mean values between these two types of firms. The results show that family managed/family controlled firms have a lower debt ratio than non-family managed/controlled firms (54.56% against 55.91%). Consistent with an earlier study by Baixauli-Soler et al. (2021) and González et al. (2013), we found that family managed enterprises have lower debt due to managerial control and a greater desire to preserve SEW within FFs, specifically when FFs are controlled by a family CEO.

With regard to corporate governance variables, FFs do not appear to have a statistically significant difference in the percentage of independent directors (43.90% versus 43.72%) amongst family managed/family-controlled firms and non-family managed/family-controlled firms. The average board size is three to four individuals, and promoters own 54.83% of the shares, with a substantial distinction in the family ownership amongst family managed/family-controlled firms and non-family managed/family-controlled firms (56.40% against 53.86%). Family managed/controlled firms, on average, tend to have a larger firm size (6.9923 versus 6.2829) and greater tangible assets (29.98% versus 29.07%) than non-family managed/controlled firms. Furthermore, on average, the profitability and growth rate are 6.21% and 1.0218, respectively, with an average firm age of approximately 30 years. Sample statistics show a non-debt tax shield of 2.54% with a significant difference (2.61% versus 2.50%) and an average liquidity ratio of 1.6604 with an insignificant difference amongst family managed/family-controlled firms and non-family managed/family-controlled firms.

Table 2. Correlation matrix of the study variables.

Variables	Debt	Firm Size	Profitability	Tangibility	Growth Opportunity	Firm Age	NDTS	Liquidity	Promoter Ownership	Family Management	Family Control	Outside Directors	Board Size
Debt	1
Firm size	0.1250 ***	1
Profitability	−0.0780 ***	0.2390 ***	1
Tangibility	0.0460 ***	−0.0450 ***	0.1200 ***	1
Growth opportunity	0.0440	0.0600 ***	0.0280 **	−0.0160	1
Firm age	0.0600	0.0230 **	0.0640 ***	0.0660 ***	0.0190	1
NDTS	−0.0440	0.1760 ***	0.4880 ***	0.3050 ***	−0.0010	0.0820 ***	1
Liquidity	−0.4800 ***	−0.0890 ***	0.1130 ***	−0.1820 ***	−0.0200	−0.0200	−0.0060	1
Family ownership	0.0140 **	0.0580 ***	−0.0140	0.0640 ***	0.0070	0.0980 ***	−0.0400 ***	−0.0400 ***	1
Family management	−0.0390 ***	0.1470 ***	0.4100 ***	0.1370 ***	0.0020	0.0430 ***	0.4840 ***	0.0460 ***	−0.0330 ***	1
Family control	−0.0480 ***	0.1840 ***	0.5880 ***	0.1950 ***	−0.0010	0.1100 ***	0.7080 ***	0.0350 ***	−0.0520 ***	0.4950 ***	1
Outside directors	−0.0529 *	0.0131	0.0198	−0.0340	0.0268	0.0846 ***	−0.0599 **	0.0085	0.0586 **	0.0052	0.0278	1
Board size	−0.0806	0.1396 ***	0.0844 ***	−0.0004	−0.0450 *	0.2052 ***	0.0108	0.0817 ***	0.0858 ***	0.2192 ***	0.2858 ***	0.2435 ***	1
VIF	1.4561	1.3001	1.2190	1.5602	1.0121	1.0922	1.4423	1.2545	1.0456	1.3789	1.4023	1.0878	1.2501

Notes: The table shows the correlation matrix of the study variables. *, **, and *** indicate statistical significance at the 0.10, 0.05, and 0.01 levels, respectively.

presents the correlation coefficients among study variables. We find that debt is positively associated with family ownership and negatively associated with family management and family control. The said association is statistically significant at 1 percent. Other variables show consistent signs with the relevant literature. The results from the descriptive statistics represent Variance Inflation Factor (VIF) values below 10, which signify the absence of multicollinearity concerns in our empirical research.

4.2. Empirical Results

4.2.1. Impact of Family Involvement on Capital Structure

Table 3. The table shows the impact of direct relationship between family ownership, family management, and family control on the capital structure of the family firms.

	OLS	OLS	Fixed Effect	System GMM
	Without Controls [1]	[2]	[3]	[4]
Debtt−1		0.8225 *** [0.0000]	0.4675 *** [0.0000]	0.6954 *** [0.0000]
Independent variables
Family ownership	−0.022 [−1.06]	0.1530 *** [0.0000]	0.2588 *** [0.0000]	0.1168 ** [0.0390]
Family management	−0.020 ** [−2.21]	0.0026 [0.6118]	−0.0028 [0.7272]	−0.0134 ** [0.0330]
Family control	−0.010 [−1.32]	0.0142 [0.3418]	−0.0163 ** [0.0165]	−0.0225 * [0.0590]
Control variables
Firm size		0.0049 *** [0.0000]	0.0059* [0.0631]	0.0051 ** [0.0110]
Profitability		−0.2162 *** [0.0000]	−0.2672 *** [0.0000]	−0.5155 *** [0.0000]
Tangibility		0.1014 * [0.0956]	0.0437 * [0.0748]	0.1012 *** [0.0000]
Growth opportunity		0.0008 [0.1225]	0.0006 * [0.0846]	0.0001 [0.6090]
NDTS		−0.4692 [0.1101]	−0.5679 [0.1097]	0.2464 [0.2310]
Liquidity		−0.0082 *** [0.0007]	−0.0056 ** [0.0233]	−0.0720 *** [0.0000]
Firm age		0.0057 [0.2354]	−0.0661 [0.1056]	0.0060 [0.4800]
Board size		−0.0141 [0.1001]	−0.0181 [0.1031]	−0.0013 [0.1990]
Outside directors		−0.0163 [0.1174]	−0.0105 [0.1597]	−0.0123 [0.2780]
Industry dummies	Yes	Yes	Yes	Yes
Year dummies	Yes	Yes	Yes	Yes
Constant	0.618 *** [17.99]	0.1253 *** [0.0000]	0.2210 *** [0.0001]	0.1121 *** [0.0000]
Observations	6548	6548	6548	6548
Adjusted R square	0.03	0.3365	0.1354
AR[1] [p-value]				0.0000
AR[2] [p-value]				0.8300
Hansen-J test [p-value]				0.2040

Note: This table shows the regression outcomes of the demeaned independent variables determining debt using ordinary least square [OLS], OLS without control variables, the panel regression fixed effect, and the two-step system GMM. The figures in brackets indicate the p-values, of which ***, **, * represent significance at 1%, 5%, and 10% levels, respectively. Dynamic estimations are employed based on a two-step system GMM estimator with bias-corrected robust standard errors. An Arellano–Bond, first-order autocorrelation AR[1], second-order autocorrelation AR[2], and Hansen test of over-identifying restrictions have been conducted to examine the validity and strength of instruments. Arellano–Bond AR[2] tests the second-order serial correlation in the first-differenced residuals. The null hypothesis of Arellano–Bond AR[2] tests the instrument’s validity by examining whether it is correlated with the error term. In contrast, the null hypothesis of the Hansen test suggests that instruments as a group are exogenous. Family governance measures such as family ownership, family management, and family control are used to tackle endogeneity concerns as a measure of risk. Additionally, the lag of profitability is used to tackle the endogeneity problem between debt as a measure of performance as instruments plus other exogenous variables included in the instrumented equation [vector Z].

summarizes the findings obtained from Equation (1) using the two-step system GMM regression technique. Column 4 of Table 3 shows the association between family ownership, family management, family control, and capital structure. The findings reveal that a single-unit increment in family ownership marks an increment of 11.68% in the debt level of a firm. This implies a favorable association amongst family ownership and debt, emphasizing that significant shareholding among family members results in a more extensive use of debt to avoid loss of control within the family domain and to prevent family shareholders’ risk with the use of equity finance. Coherent with the outcomes of Feng et al. (2020), our results highlight that family shareholders increase debt in the capital structure to reduce minority shareholders’ control rights. Also, Tran and Nguyen (2023), from a sample of Asian nations, found that higher debt empowers creditor inquiries, improves supervisory control, and discourages opportunistic conduct within management; our findings corroborate the results obtained from this research, which found a favorable association amongst family ownership and debt. The increase in debt discipline managers limits free cash flow and protects SEW in FFs. Drawing from the SEW perspective, the result coincides with the findings of González et al. (2013), which reveal that concentration in family ownership results in a higher debt in the financial structure. Conversely, our results contradict the outcomes of Mbanyele (2020), which reveal that FFs with strong ownership choose lower debt to avoid the financial risk associated with higher debt, implying a greater desire to maintain SEW inside the firm. This strategic decision is motivated by several factors, including a desire to retain familial control over the firm (Boumlik et al., 2024), capitalize on lower debt costs (Gao et al., 2020), and sustain family ownership over generations (Comino-Jurado et al., 2021). The current study offers a substantial scholarly contribution to illustrate the association amongst family ownership and corporate debt. These findings offer insight into implications for management decision-making and the long-term retention of familial power within the FFs. However, when it comes to the association amongst family management and corporate debt, our results report an inverse association. The findings are similar to those of López-Delgado and Diéguez-Soto (2020) and Schmid (2013) from a sample of FFs in European countries, who found that when owners take up managerial responsibilities within the firm, they rely less on external monitoring techniques with the use of debt. Subsequently, family managed firms are less likely to utilize corporate debt to keep SEW inside FFs. These companies hesitate to use debt since it may threaten intellectual and economic capital, future generations’ opportunities, or the family’s image. Moreover, FFs try to avoid higher debt, which may threaten the financial assets and SEW of a firm.

Further, column 4 of Table 3 illustrates that family presence in TMT, like family participation in executive positions, results in an adverse association amongst family control and debt finance. Our results are consistent with Tran and Nguyen’s (2023) findings, which suggest that family control may lead to more conservative financial decisions within a company, which suggests two arguments attributed to risk aversion and a conservative perspective, especially when family members occupy board positions. First, coherent with the outcomes of Jara et al. (2018), our findings suggest that enterprises frequently avoid debt finance to decrease their exposure to financial risk. Second, in line with the conclusions drawn by Baixauli-Soler et al. (2021), our findings indicate that FFs with a stronger aspiration to safeguard SEW choose lower debt in their financial structure. This aligns with the risk aversion associated with higher debt and the possible loss of SEW owing to greater creditor monitoring with the rise in the level of debt in a firm. The findings from our study show that companies with family board members prefer internal resources over external finance to meet their investment needs.

Further, we examine the effect of control variables on the financial structure; our research in support of TOT reveals a favorable association amongst the firm size and debt. Our results align with the prior studies by Poletti-Hughes and Martinez Garcia (2022) regarding FFs within the United States, which suggests that larger corporations possess a beneficial borrowing capacity because of their well-established reputation in the market. This is explained by their higher degree of trust and easier access to lenders than smaller enterprises. Further, in keeping with Amin and Liu’s (2020) findings in favor of the POT, our findings state that firms prioritize internal funding over external debt and use a hierarchical structure to govern their financing decisions. Our findings in support of TOT and consistent with the outcomes of Poletti-Hughes and Martinez Garcia (2022) state that companies with more tangible assets can utilize such assets as collateral security, which often reduces information asymmetry with creditors and improves their ability to raise funds through debt financing. According to the research conducted by Baixauli-Soler et al. (2021), family-owned enterprises in Spain maintain more significant financial reserves and rely less on debt financing; our result is in line with their findings. Furthermore, liquidity has an inverse relationship with debt levels, in support of POT, and is consistent with findings from a sample of Spanish businesses by Sardo et al. (2022), who found that firms prefer to employ internal funds rather than external loans to decrease the financial risk associated with debt. However, a statistically insignificant favorable association is observed amongst debt and the variables’ growth opportunity, non-debt tax shield, and firm age. Apart from firm-specific factors, it has been found that the board size has no apparent influence on debt utilization. Ishak et al. (2011) argue that an increase in the number of directors does not inherently result in higher board pressure to address the issue of excessive debt. In the same way, having a substantial ratio of independent directors serving on the board does not have a substantial effect on debt policy, which is in line with the outcomes of Setia-Atmaja (2010) from a sample of family-owned firms in Australia.

4.2.2. Non-Linearity Between Family Ownership and Capital Structure

Next, we investigate the non-linear association amongst family ownership and debt using the square of family ownership to illustrate the non-linear association amongst family ownership and debt. The findings from our study show that family owners prefer debt when families hold a low level of ownership in the firm. However, with an increase in the level of family ownership, there is a shift towards equity to optimize debt levels. Column 3 of

Table 4. The table shows the non-linear relationship between family ownership and capital structure of family firms.

	OLS	Fixed Effect	System GMM
	(1)	(2)	(3)
Debtt−1	0.8223 *** (0.0000)	0.4669 *** (0.0000)	0.6822 *** (0.0000)
Independent variables
Family ownership	−0.0161 ** (0.0479)	−0.2415 *** (0.0016)	0.7160 ** (0.0410)
Family ownership2	−0.0339 (0.6656)	−0.0190 (0.9148)	−0.5823 * (0.0870)
Control variables
Firm size	0.0051 *** (0.0000)	0.0060 * (0.0580)	0.0066 *** (0.0010)
Profitability	−0.2171 *** (0.0000)	−0.2680 *** (0.0000)	−0.4861 *** (0.0000)
Tangibility	0.0011 (0.1166)	0.0445 * (0.0699)	0.0965 *** (0.0000)
Growth opportunity	0.0008 (0.1209)	0.0006 * (0.0880)	0.0001 (0.4230)
NDTS	−0.4648 * (0.0521)	−0.5605 ** (0.0108)	−0.0144 (0.9420)
Liquidity	−0.0082 *** (0.0008)	−0.0054 ** (0.0364)	−0.0696 *** (0.0000)
Firm age	0.0053 (0.2641)	−0.0636 (0.1077)	0.0076 (0.3880)
Board size	−0.0128 (0.1021)	−0.0158 (0.2094)	−0.0084 (0.1640)
Outside directors	−0.0175 (0.1103)	−0.0030 (0.7741)	−0.0069 (0.5000)
Industry dummies	Yes	Yes	Yes
Year dummies	Yes	Yes	Yes
Constant	0.1168 *** (0.0000)	0.2123 *** (0.0000)	0.3490 *** (0.0020)
Observations	6548	6548	6548
Adjusted R square	0.2364	0.3338
AR[1] (p-value)			0.0000
AR[2] (p-value)			0.8900
Hansen-J test (p-value)			0.1500

Note: This table shows the regression outcomes of the demeaned independent variables determining debt using ordinary least square (OLS), panel regression fixed effect, and the two-step system GMM. The figures in brackets indicate the p-values, of which ***, **, * represent significance at 1%, 5%, and 10% levels, respectively. Dynamic estimations are employed based on a two-step system GMM estimator with bias-corrected robust standard errors. Arellano–Bond, first-order autocorrelation AR[1], second-order autocorrelation AR[2], and Hansen test of over-identifying restrictions have been conducted to examine the validity and strength of instruments. Arellano–Bond AR[2] tests the second-order serial correlation in the first-differenced residuals. The null hypothesis of Arellano–Bond AR[2] tests the instrument’s validity by examining whether it is correlated with the error term. In contrast, the null hypothesis of the Hansen test suggests that instruments as a group are exogenous. Family ownership and profitability are used to tackle the endogeneity concerns instruments plus other exogenous variables included in the instrumented equation (vector Z).

estimates the value of square of family ownership as (−0.5823), indicating an inverted U-shaped relationship between family ownership and indebtedness, consistent with the findings of Mbanyele (2020) from a sample of listed enterprises in Italy.

4.2.3. Results of the Impact of Family Involvement on Capital Structure: Family Management and Family Control

Furthermore, the study investigates how family management and family control moderate the association between family ownership and debt finance in FFs. Columns 3 and 6 of

Table 5. The table shows the impact of family management and family control as moderators of the capital structure in the family firms.

	OLS	Fixed Effect	System GMM	OLS	Fixed Effect	System GMM
	(1)	(2)	(3)	(4)	(5)	(6)
Debtt−1	0.8225 *** (0.0000)	0.4675 *** (0.0000)	0.7020 *** (0.0000)	0.8224 *** (0.0000)	0.4675 *** (0.0000)	0.6944 *** (0.0000)
Independent variables
Family ownership	0.0537 *** (0.0000)	0.2601 *** (0.0000)	0.1297 *** (0.0050)	0.0544 *** (0.0000)	0.2666 *** (0.0000)	0.1080 * (0.0700)
Family management				0.0034 (0.5091)	0.0047 (0.5591)	−0.0134 ** (0.0340)
Family ownership * Family management	0.0045 (0.6181)	0.0066 (0.6360)	−0.0180 * (0.0960)
Family control	0.0042 (0.3284)	0.0160 * (0.0172)	−0.0036 ** (0.0260)
Family ownership * Family control				0.0049 (0.5138)	0.0229* (0.0516)	−0.0034 ** (0.0280)
Control variables
Firm size	0.0049 *** (0.0000)	0.0059 * (0.0634)	0.0048 ** (0.0150)	0.0049 *** (0.0000)	0.0059 * (0.0632)	0.0051 ** (0.0130)
Profitability	−0.2162 *** (0.0000)	−0.2670 *** (0.0000)	−0.5120 *** (0.0000)	−0.2165 *** (0.0000)	−0.2675 *** (0.0000)	−0.5097 *** (0.0000)
Tangibility	0.0014 (0.8959)	0.0438 * (0.0745)	0.1010 *** (0.0000)	0.0014 (0.9014)	0.0440 * (0.0730)	0.1002 *** (0.0000)
Growth opportunity	0.0008 (0.2228)	0.0006 (0.1849)	0.0001 (0.4890)	0.0008 (0.1229)	0.0006 * (0.0856)	0.0007 (0.6230)
NDTS	−0.4692 (0.2301)	−0.5673 (0.1098)	0.2500 (0.2220)	−0.4691 (0.5201)	−0.5708 (0.1094)	0.2181 (0.2960)
Liquidity	−0.0082 *** (0.0007)	−0.0056 ** (0.0228)	−0.0712 *** (0.0000)	−0.0083 *** (0.0007)	−0.0066 ** (0.0263)	−0.0725 *** (0.0000)
Firm age	0.0057 (0.2338)	−0.0662 * (0.0556)	0.0048 (0.5660)	0.0057 (0.2328)	−0.0662 * (0.0655)	0.0072 (0.4020)
Board size	−0.0140 * (0.0685)	−0.0181 (0.1030)	−0.0018 (0.7210)	−0.0138 (0.2451)	−0.0177 (0.5038)	−0.0010 (0.8380)
Outside directors	−0.0163 (0.1173)	−0.0004 (0.9632)	−0.0108 (0.3330)	−0.0164 (0.1162)	−0.0008 (0.9343)	−0.0132 (0.2470)
Industry dummies	Yes	Yes	Yes	Yes	Yes	Yes
Year dummies	Yes	Yes	Yes	Yes	Yes	Yes
Constant	0.1257 *** (0.0000)	0.2309 ** (0.0201)	0.3220 *** (0.0002)	0.1260 *** (0.0000)	0.3210 *** (0.0012)	0.2230 ** (0.0301)
Observations	6548	6548	6548	6548	6548	6548
Adjusted R square	0.3465	0.2354		0.3364	0.1349
AR[1]			0.0000			0.0000
AR[2]			0.8350			0.7685
Hansen- J test			0.2210			0.1950

Note: This table shows the regression outcomes of the demeaned independent variables determining debt using ordinary least square (OLS), panel regression fixed effect, and the two-step system GMM. The figures in brackets indicate the p-values, of which ***, **, * represent significance at 1%, 5%, and 10% levels, respectively. Dynamic estimations are employed based on a two-step system GMM estimator with bias-corrected robust standard errors. Arellano-Bond, first-order autocorrelation AR[1], second-order autocorrelation AR[2], and Hansen test of over-identifying restrictions have been conducted to examine the validity and strength of instruments. Arellano-Bond AR[2] test the second-order serial correlation in the first-differenced residuals. The null hypothesis of Arellano-Bond AR[2] tests the instrument’s validity by examining whether it is correlated with the error term. In contrast, the null hypothesis of the Hansen test suggests that instruments as a group are exogenous. Family governance measures such as: family ownership, family management, and family control are used to tackle the endogeneity concerns as a measure of risk. Additionally, lag of profitability is used to tackle the endogeneity problem between debt as a measure of performance as instruments plus other exogenous variables included in the instrumented equation (vector Z).

show a positive association between family ownership and debt finance in FFs. The findings are consistent with our main findings, which indicate that FFs commonly utilize debt to sustain control within the firms. For instance, Croci et al. (2011) identified a positive association between family ownership and debt, implying that family members prioritize preserving control of the company. Thereby, FFs prefer to increase debt to avoid the risk of losing control and safeguard SEW within FFs.

Column 3 of Table 5 further shows that family management has an adverse impact on the association amongst family ownership and debt. Consistent with our main results, as illustrated in Table 3, which show a negative association between management and debt, the results in Table 5 show that, generally, firms managed by family members do not require external monitoring because when family members manage firms, the owners themselves manage the firms. Such involvement of family members in the family management results in the convergence of interests between owners and managers prospering under family managed firms, with both utilizing lower debt to retain SEW with FFs (López-Delgado & Diéguez-Soto, 2020). Similarly, when family members are involved in the TMT, family control results in an adverse association amongst family ownership and debt, exhibiting the risk averse behavior of family members in FFs and a stronger desire to preserve SEW, which inhibits FFs from increasing debt within the capital structure of the FF, as illustrated in column 6 of Table 5. The findings align with Mbanyele (2020) and Poletti-Hughes and Martinez Garcia (2022), who found that FFs prefer lower debt levels to preserve family control and preserve SEW within the firm.

5. Conclusions

The study examines a sample of 913 non-financial firms in India to evaluate the impact of family involvement in corporate governance on the capital structure of FFs. Most of the previous research focuses on economic rather than non-economic factors to understand the financial decisions of FFs. Given the importance of non-economic factors in FFs in the recent literature, such as Baixauli-Soler et al. (2021) and Comino-Jurado et al. (2021), the findings on family engagement and capital structure need to be more consistent. Our study aimed to contribute to the growing research on the financial policies of FFs. The results show that FFs adopt a strategic approach to decision-making, driven by the desire to achieve SEW together with the economic objectives of the firm (Feng et al., 2020). Corroborating the findings from the prior studies Avabruth and Padhi (2023), our results reaffirm that FFs make financial decisions in a desire to maintain family control, highlighting the prevalence of non-economic imperatives over economic considerations. We consider agency theory (Jensen & Meckling, 1976) and SEW perspective (Gomez-Mejia et al., 2007) to analyze the relationship between family involvement and capital structure in FFs. Specifically, FFs prefer non-economic benefits more than economic benefits.

Our study provides evidence of the positive relationship between family ownership and debt in FFs. Consistent with the results of González et al. (2013) and Ramalho et al. (2018), our results indicate a favorable association amongst family ownership and debt to preserve family control at a lower cost of debt and mitigate agency problems that may arise when family members hold the majority of shares, and a company needs supervision over management. Supporting Poletti-Hughes and Martinez Garcia’s (2022) argument, our results portray that family ownership may strengthen creditors’ influence over management with more debt, which helps to reduce opportunistic behavior to meet the long-term survival needs of the firm. Further, our results indicate an inverted U-shaped pattern amongst family ownership and debt, consistent with Tran and Nguyen’s (2023) results, which emphasize a variation in the capital structure across different levels of family ownership to retain family control in the firm. Although the impact of family ownership and debt is positive. However, when family management moderates the association, the impact of family ownership and debt becomes negative. Our findings support the premise by Baixauli-Soler et al. (2021), which states that family members on the board reduce the demand for debt in a desire to preserve SEW within the firm. Further, board governance is essential in achieving owners’ goals inside family enterprises. As a result, when family members serve in TMT, debt levels decrease, indicating a shift from passive creditor supervision to family control. Finally, family control has a detrimental effect on the association amongst family ownership and debt. Our findings re-establish the result of Molly et al. (2019) and Muñoz-Bullón et al. (2023), which indicate that family involvement impacts the firm’s capital structure by influencing financial objectives.

Our study has theoretical implications and practical significance, emphasizing financial behavior’s influence in FFs. First, our study recommends that policymakers should focus not only on the economic aspect but also on non-economic aspects, such as control considerations, when making financial decisions in the company. Second, our study suggests that financial managers use debt as a governance tool to resolve agency problems between owners and managers (Jensen, 1986). Third, prior studies on family involvement and capital structure have shown conflicting outcomes. This study extends prior research utilizing an emerging market perspective. The study assists financial managers in evaluating the influence of corporate governance factors on financial policy decisions in an emergent economy with a weak institutional framework and creditor control. Our study also identifies some practical implications for financial conduct when making strategic decisions in FFs. First, our research assists policymakers to recognize the heterogeneity among FFs and their influence on the financial decisions of the firm. Prior research by Muñoz-Bullón et al. (2023) has shown that family goals and involvement are two major components of FFs that aim to achieve SEW within the firm. Similarly, this study suggests that family involvement in executive management and TMT substantially impacts financial decisions, emphasizing that when family members are involved in management, they usually have a detrimental attitude towards external finance. Theoretically, our research shows that SEW influences the financial choices of FFs. Our findings highlight the importance of agency theory and the SEW perspective in assessing the relevance of family involvement in making strategic decisions for FFs.

Our research has several limitations. First, the study incorporates data from a single country. Creditor monitoring, which varies depending on the institutional framework and corporate governance, influences strategic choices in FFs. In future, the researcher may undertake a multi-country investigation to scrutinize the impact of SEW variations on FFs’ capital structure choices. Furthermore, future scholars might investigate the elements that affect the debt maturity structure in FFs.