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This work investigates whether being a family business influences a private firm’s propensity to be leveraged and the underlying reasons behind such propensity. Analysis focuses on a sample of Italian private family and non-family firms for the period from 2008-2017. Socioemotional and corporate governance considerations cause agency conflicts to be negligible in Italian private family firms, and thus the use of debt is unrelated to these conflicts. Nevertheless, these enterprises are more likely to eschew a zero-debt policy, as opposed to their non-family counterparts. This is due to the socioemotional orientation of Italian private family firms, that is the desire of their family owners to keep long-term control over the business, through the use of leverage, which prevails over risk aversion.

Zero-Leverage Policy: Is the Family Nature of Private Firms Relevant?