The role of firm life cycle on capital structure of family firms over non-family firms: Empirical evidence from India

This study attempts to identify and compare the critical determinants and the speed of adjustment to optimal capital structure across various stages of the firm life cycle (FLC). Signifying the attitude of family firms (FFs) owing to risk aversion and the need to preserve firm control, the study differentiates the debt policies of family and non-family firms (NFFs) in an emerging economy. We use a target adjustment model and two-step system generalised method of moments to analyse panel data on a sample of 1435 listed non-financial firms spanning from 2013 to 2022. We find that compared to NFFs, FFs are inherently more indebted and adjust faster towards achieving optimal capital structure. Next, we find that firm's profitability, liquidity and tangibility are the major factors that significantly impact the quantity of debt across different stages of the FLC in both FFs and NFFs. Our results are robust to a battery of sensitivity tests. Our study suggests the significance of appropriate capital structure at different stages of the FLC.