“The preferred usage of equity and debt financing in family businesses: evidence from Czech Republic”

Czech family businesses are currently experiencing their first changeover of genera- tions in history. The first generation (founders or successors), two or more generations collectively operate in management and administrative authorities. This article aims to compare and evaluate preference for use of debt or equity financing in family businesses with the differing involvement of generations and the diversity of its allocation for the specific need of the company’s growth. This empirical study is performed based on a qualitative analysis of 245 family businesses. Hypotheses were confirmed using the Pearson correlation coefficient. This study confirms the dependence of equity and debt financing on the number of generations in management. This brings differing perspec- tives, opinions, and practices for financial management in the sense of a preference for debt or equity financing. The need for debt arises at the moment of compensating the transfer of ownership between generations. The analysis results indicate that family businesses managed by one generation prefer equity financing, companies managed by first and second generations prefer debt financing, and companies managed by second and third generations prefer equity financing.


INTRODUCTION
Family businesses are an important part of the economies of emerging and developed countries alike. Globally, they represent a socially significant phenomenon and contribute significantly to the creation of GDP (Prasetyo, 2016; Krošláková, 2013). They operate in all commercial industries, take various legal forms and organizational structures, and have a range of different sizes -from micro, small and medium-sized enterprises to large, multinational, global corporations traded on exchanges (Cerdan & Hernandez, 2013).
Families have done business for the majority of recorded history family businesses with a long tradition worldwide. And yet research into the specific characteristics of family businesses is a relatively new scientific discipline. In general, they are perceived as a fundamental driving force of global economic growth, prosperity, and stability of nations (Sharma, Chrisman, & Gersick, 2012). Due to their declared and recognized values and family know-how, they are reliable in the eyes of the broader public, vendors, employees, and customers (Petrů, Havlíček, & Tomášková, 2018).
According to Weclawski (2017), most small and medium-sized family businesses struggle with their preferences for equity or debt financing for investment in growth, innovation, and expansion. The scope of the need for financing, including external sources, depends on the family

LITERATURE REVIEW
The relevance of research of family businesses and its general applications depends largely on the definition of a family business in a specific country. There are countries in Europe where a single concrete definition of a family business predominates (e.g., Cyprus, Iceland, Ireland, Malta). In contrast, in other European countries one may encounter definitions more derived from legal questions, expert reports, academic research, and social agreements (e.g., Denmark, France, Italy, the Netherlands, Norway, Poland, Romania). Current research into family business indicates that approximately 70-80% of all companies are family businesses. The countries with the largest percentage of family businesses worldwide (90% and higher) include Brazil, Chile, India, Japan, Venezuela, and the USA. European countries with the highest proportion of family businesses include Germany (95%), Italy (93%), Sweden (79%), and Spain (75%). The companies with the largest share in employment are in Ecuador (93%) and Italy (94%), while family businesses in Mexico have the highest share of GDP worldwide at 90% (Ferramosca & Ghio, 2018, p. 24). The economic importance of family businesses impacts more than half of global GDP, and they are becoming an essential source of employment in most countries (Ferramosca & Ghio, 2018, p. 13 Specific features of human management, e.g., family relationships management, economic issues, e.g., modesty, profits' reinvestment to future company growth development are main factors that distinguish family business from their non-family counterparts (Petrů, Kramoliš, & Stuchlík, 2020). In the literature, family businesses are presented as a combination of three systems that overlap and mutually influence one another (Krošláková, 2013). This includes a system of family that is oriented on emotions and primarily focused on non-economic goals. The second is a business system oriented on results and focused on economic goals, while the third system is focused on the management of assets and ownership (Vandemaele & Vancauteren, 2015). Molly, Uhlaner, De Massis, and Laveren (2019) claim that goals focused on family indirectly influence the overall level to which equity and debt financing are used for financing by representing different generations contributing to the management or ownership of the business. It is shown that the perspective of socioemotional wealth also determines decisions on the amount of debt financing. DeTienne and Chirico (2013) also consider that the important driving forces in decision-making on equity and debt financing are socio-emotional goals. Socio-emotional wealth is considered the primary driver of family businesses' strategic behavior in the research of Debicki, Kellermanns, Chrisman, Pearson, and Spencer (2016) as well. The use of equity financing dominates in early generational phases. According to Machek, Hnilica, and Brabec (2014), family businesses show a lower level of indebtedness in their relationship to debt financing due to their founders' aversion to losing family control over the business. The tendency to use less short-term debt financing leads to a more conservative financial policy and higher liquidity. An irreplaceable role is also played by factors originating from the outside (economic, political environment, competitive environment, and market relations), influencing the business risk perceived by companies' owners (Çera, Belás, & Strnad, 2019; Kupec, 2018). This topic is also important in terms of the development of competitiveness of Czech family businesses, which operate in an economy traditional-ly oriented on export and capitalizes on the EU's open market (Polák, 2019).
According to R. Bizri, Jardali, and M. Bizri (2018), family businesses decide on the form and manner of financing under the influence of the needs of the family and the needs of the business, the influence of the number of family members concerning the management of property and ownership. Family businesses decide on financing under the influence of non-economic considerations, e.g., the long-term outlook of preserving family wealth (Brigham et al., 2014), under the influence of company size (Boateng, Seaman, & Silva, 2019), taking into account the unexpectedness and uncertainty of societal development. Family businesses have a low level of indebtedness, especially those with a significant market position in their field (Gallo & Vilaseca, 1996). The same conclusion was reached by Buzzell, Gale, and Sultan (1975) who describe a company's market position as the key to its profitability. According to Cirillo, Mussolino, Romano, and Viganò (2017), a higher number of generations negatively correlate to the business's performance regardless of the source of financing. The differing structures of the number of generations for the management of family businesses may have a long-term impact on its financing decisions and, thereby, its performance as well (D'Aurizio, Oliviero, & Romano, 2015). The debt-to-equity ratio is a relevant factor in analyzing performance variations. Performance is interconnected with sources of financing, with capital structure ( . A survey focused on internally perceived advantages and disadvantages of family businesses demonstrated that a company's access to outside financing is considered by owners to be their most significant disadvantage for various reasons (Břečková, 2016). It can be expected that family businesses will continue throughout the process of their development, to encounter a choice between decisions by their relevant management structure on financing either from internal or external sources while making investment decisions, performing financial settlement as part of generational change, and expanding to international markets (Wiener-Fererhofer, 2017).
The paper aims to evaluate and compare the overall preference between equity and debt financing in companies with various generations involved.
To achieve this research aim, three research questions took an account and hypotheses to them as follows: RQ 1 : In the Czech Republic, the process of generation exchange is taking place. Are multiple mutually collaborating generations represented in management in the family businesses of the Czech Republic? H 1 : The number of companies whose management involves both the first and second generation together will predominate.

METHOD
The analysis examines family businesses, phases of intergenerational transfer, the position of different generations on equity vs. debt financing, and specific areas of need for capital to promote company growth.
Given that it was necessary to maintain the randomness of the sample and at the same time the dependence of the results of the survey on the format of the survey performed, the authors in the first phase used qualitative research, informal meetings (round tables, interviews) and semi-structured interviews, open discussions with top management of family businesses. The qualitative research methods allowed for a view of the subject of the study, its contextual logic, and the explicit and implicit rules that function in the practice of the issues being studied. The research provided more detailed information about why the given phenomenon appeared (Hendl, 2016). The progress of the qualitative research took on a circular form. This means that during the years specific companies could return to the individual phases of the research and in some cases to retroactively supplement or modify them (Švaříček & Šeďová, 2014).
The responses received were subsequently processed mathematically in the manner described below in the text. From 2014 to 2019, qualitative research took place with representatives of 848 family businesses. For 245 of them (limited liability companies, joint-stock companies), it was possible to obtain the relevant financial data/financial reports for the calculation of financial structure using data obtained from the ARES database of economic entities, the public register and docu-  Table 2. Table 3 shows (without need for completeness) forms of allocation of Czech family businesses' capital.

RESULTS
The first research question (RQ 1 ) focused on the following issue: In the Czech Republic, the process of generation change is taking place. Are multiple mutually collaborating generations represented in management in the family businesses of the Czech Republic? H 1 : The number of companies whose management involves both the first and second generation together will predominate. The representation of the number of generations is shown in Table 4.
Multiple mutually collaborating generations are represented in management in the family businesses of the Czech Republic. Either the first and second, or first second and third, or second and third generations work together. H 1 may be confirmed; in 38.8% of companies, the first and second generation is working together in management.
The second research question (RQ 2 ) focused on whether there is a correlation between the number of generations in management and a preference for the use of equity vs. debt financing. Use of equity and debt financing in the years 2014-2018 in the individual generations is shown in Figure 1. Figure 1 shows that there is a correlation between the number of generations in management and a preference for equity vs. debt financing.
Based on the calculated average, using descriptive statistics, hypothesis H 2 "In companies in which one generation is represented (only the first or only the second), equity financing is prioritized." can be confirmed.
Based on the calculated average, using descriptive statistics, hypothesis H 3 "In companies in which the first and second generations are represented, debt financing is prioritized." can be confirmed.

Form of allocation Description
Settlement and transfer Settlement with founder(s) of the company from the 1 st generation and transfer of assets to successor(s) in the 2 nd generation. Settlement between family members, buyout of original partner, etc.
Commercial activities Expansion to new international markets, development of business activities in existing international markets, entry to new customer segments, investment in sales offices, creation of e-shops, etc.
Stock supplies Purchase of supplies due to extraordinary jobs, sudden expansion of production, advantageous purchases of materials related to bulk pricing, seasonal fluctuations, etc.  Based on the calculated average, using descriptive statistics, hypothesis H 4 "In companies in which the first, second, and third generations are represented, debt financing is prioritized." can be confirmed.

Changes in technology
Based on the calculated average, using descriptive statistics, hypothesis H 5 "In companies in which the second and third generations are represented, debt financing is prioritized." is rejected.
The third research question (RQ 3 ) focused on whether there is a correlation between the number of generations in management and the specific manner/need for the use of equity vs. debt financing. Table 5 uses descriptive statistics to evaluate the third research question (RQ 3 ) that there is a correlation between the number of generations in management and the specific manner/need for the use  Note: AF -absolute frequency, RF -relative frequency.
of equity vs. debt financing. In companies where only the 1 st generation is involved, equity financing is used primarily to finance technology changes. In a company where the first and second generations are active, debt financing is used primarily to finance settlement and transfer of assets. In a company with the first, second, and third generations, debt financing is used primarily to finance settlement and transfer of assets. In companies where the second and third generations are involved, equity financing is used primarily to finance technology changes. In companies where only the second generation is involved, equity financing is used primarily to finance commercial activities.
The statistical significance of the dependence between generations and the need for funds for their allocation is reflected in calculating the Pearson coefficient (see Table 6).
Hypothesis H 6 "There is a strong statistical significance between generations and the need for funds for their allocation" was rejected; the resulting value of r = 0.457 indicates a moderate dependence. This finding can be validated, e.g., the business's needs in this study are represented by the allocation of funds to commercial activities, changes to technology and technical innovations, product portfolio innovation, support of managing relationships with customers, and increasing brand visibility. Note: ** Correlation is significant at the 0.01 level (2-tailed).

DISCUSSION
According to Gallo and Vilaseca (1996), the preference for equity financing is explained by the strong identification of the owner with the business. The research demonstrated that if a company is continually owned and managed by the first generation, this generation will favor financing using equity. A similar situation exists if a company is owned and managed only by the second generation. The use of equity financing dominates in early generational phases. This research has some restrictions and limits. Mainly, these consist of owners of family businesses' willingness to share financial information -sole proprietors who do not have a legal obligation for such disclosures -are not willing to share this data. Another limitation is the ease/convenience, or lack thereof, of access to obtaining outside funds in various phases of the economic cycles. If the economy is doing well, its growth is driven by the final consumption expenditure of households, companies and governments' investment activity, and family businesses are motivated for further expansion and use of debt financing for their own development. Another limitation is the willingness of owners to subject them to the risk of use of debt financing. Another limitation is the lack of interest in political representation in supporting the family business segment.

CONCLUSION
Several generations collectively operate in management and administrative authorities in the family businesses. This brings differing perspectives and practices for financial management in the sense of a preference for debt or equity financing. It was demonstrated that in companies where one generation is represented (only the first or only the second), equity financing is prioritized. In companies in which the first and second generations are represented, debt financing is prioritized. In companies where the first, second, and third generations are represented, debt financing is prioritized. In companies in which the second and third generations are represented, debt financing is prioritized. Debt financing is used primarily for intergenerational settlement and transfer of assets, investment investments in technology, product portfolio innovation, and expanding commercial activities. Equity financing is used primarily for technological development, support of customer relations, and increasing brand visibility. The study demonstrated the need for outside capital in the transfer of assets as part of the first intergenerational change and the need for capital in changing technologies, commercial activities, etc.
This topic prompts other possible areas of research. These may include financial stability, level of indebtedness of family businesses before and after generational succession, evaluation of the level of usage of guarantees and support for the family business, level of aversion to the risk of debt financing among younger generations, etc. It also compares evaluated criteria in countries of the former socialist sector or countries with uninterrupted traditions of the family business.