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

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Czech family businesses are currently experiencing their first changeover of generations 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 perspectives, 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.

Acknowledgment
The result was created in solving the project TA ČR ETA 2 (STA02018TL020) “Family businesses: Value drivers and value determination in the process of succession”, TL02000434. We are grateful also to representatives of enterprises who were willing to participate in this research.

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    • Figure 1. Comparison of equity and debt financing in 2014 – 2018 by the representation of the number of generations
    • Table 1. Frequency of family businesses by legal form
    • Table 2. Description of the study sample
    • Table 3. Real need for capital
    • Table 4. Representation of the number of generations
    • Table 5. Real need for capital concerning the number of generations
    • Table 6. Correlation analysis between generations and the need for funds
    • Conceptualization
      Naděžda Petrů
    • Funding acquisition
      Naděžda Petrů
    • Investigation
      Naděžda Petrů
    • Project administration
      Naděžda Petrů
    • Supervision
      Naděžda Petrů
    • Writing – original draft
      Naděžda Petrů
    • Data curation
      Andrea Tomášková
    • Formal Analysis
      Andrea Tomášková
    • Methodology
      Andrea Tomášková
    • Resources
      Andrea Tomášková
    • Software
      Andrea Tomášková
    • Validation
      Andrea Tomášková
    • Visualization
      Andrea Tomášková
    • Writing – review & editing
      Andrea Tomášková