FINANCE INTENTION AND BEHAVIOR IN DUTCH SME:
FAMILY VS NON FAMILY FIRMS
Adapting Planned Behavior Theory to explain the difference between
(and among) family and non family SMEs with regards to innovation,
duration of CEO tenure and generation of family involvement.
Lucque Schmeitz
Student Number: 10681833
lucque-schmeitz@hetnet.nl
30-6-2015
Supervisor:
Dr. Ir. J. Kraaijenbrink
Prof. Dr. L. van Teeffelen
Master thesis part of the Executive Program in Management studies of the University of Am-sterdam (UvA) department of AmAm-sterdam Business.
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Abstract
Using a unique stratified random sample of 3183 Dutch Small Enterprises (SME), I investigate the finance intention and behavior of family firms relative to non-family firms. I argue that family firms relative to non-family firms make different decisions and choices in their capital structure.
I use insights from the theory of planned behavior in my model for analyzing the capi-tal structure of Dutch SME, this enables me to incorporate the importance of family norms and preferences in capital structure choices and decisions.
In order to gain more insight in why Dutch family firms engage in certain forms of financing, I analyze how certain firm characteristics (family vs non-family ownership, dura-tion of CEO tenure and generadura-tion of family involvement), affect the finance intendura-tion and behavior of CEOs in general and specifically on innovation.
I find that family and non-family firms differ in their finance intention and behavior but not that much as aspected and not significantly. Not consistent with Frank & Goyal (2003) and Casson (1999) I didn't find that family firms use internal fund financing more than exter-nal equity and debt relative to non-family firms. This is also not consistent with the findings of Meyers & Majluf (1984) that non-family firms prefer finance done with external equity and debt above internal fund relative to family firms.
However, seeming contradictory with the findings mentioned above but not consistent with the findings of Anderson & Reeb (2003a) who emphasizes the explanatory importance of family norms and preferences in finance intention and behavior, I also find that family firms use external debt more often for innovation relative to non-family firms but this wasn't significantly. Teeffelen et al (2010) showes that Dutch family owned SMEs, relative to not Dutch, are as or even more innovative after ownership transfer. The innovation reported by the non family SME can be from formal SMEs
Also by adding specific firm characteristics, like duration of CEO tenure and genera-tion of family ownership, to my model and analysing it I didn't find that the use of external debt for innovation in family firms decreases if generations of ownership or tenure of CEO increases. Which is not consistent with the findings of Zara (2005), Molly, Laveren & Deloof (2010) and Miller & le Breton-Miller (2005), but consistent with the findings of Teeffelen et
4 al (2010) that Dutch family owned SMEs, relative to not Dutch, are as or even more innova-tive after ownership transfer and with that of Heaver et al (2014) that the assumptions of the stagnation theory don't hold for Dutch family owned SMEs. And therefore provide even more stronger evidence or prove for the innovativeness of Dutch family owned SMEs.
The research expands prior research on investment intention and behavior in Dutch SME and contributes to the field of family business research by proposing that family firms capital structure decision making involves both economic and noneconomic, psychological, variables. In practice understanding how CEOs of family owned small SMEs handle capital structure issues might mean that the important and difficult issue of obtaining additional fi-nance, needed to obtain longevity, in family firms becomes more within reach.
keywords: Dutch SME, family firms, capital structure, planned behavior theory, genera-tion of ownership, CEO tenure and innovagenera-tion.
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Table of contents
Abstract...1
List of tables and figures...5
Chapter 1: Introduction... 7
1.1 Background of the Study ... 7
1.2 Statement of the Problem ... 9
1.3 Research Question and contribution to science ... 11
Chapter 2: Literature and theoretical development ... 13
2.1 Literature review... ... 13
2.2 Theory of Planned Behavior (TPB) and family owned SMEs finance intention and behavior ... 14
2.3 Attitude & norms and perceived behavior control that predict finance intention and behavior in family owned SMEs.. ... 16
2.4 Attitude & norms and perceived behavior control with regards to innovation in family owned SMEs that predict finance intention and behavior ... 18
2.5 Attitude & norms and perceived behavior control with regards to generation of ownership that predict finance intention and behavior in family owned SMEs...20
2.6 Attitude & norms and perceived behavior control with regards to duration of CEO tenure in family owned SMEs that predict finance intention and behav-ior...21
2.7 Conceptual model ...23
Chapter 3:Method ... 24
3.1 Data collection.... ... 24
3.2 Sample description & reliability.... ... 24
3.3 Measurement of variables.... ... 26
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Chapter 4: Results and Analysis ... 33
4.1 Descriptive analyse ... 33
4.2 Correlation matrix: variables of Small SME relative to family owned and non family owned ... 39
4.3 Regression analyse: variables of Small SME relative to family owned and non family owned ... 42
Chapter 5: Discussion ... 58
5.1 Theoretical and practical implications...58
5.2 Limitations...62
5.3 Further research...62
References & Bibliography ... 65
7 List of tables and figures
Tables
Table 1 : Collected data compared to the Dutch population (KvK, 2015)
Table 2 : Company size and amount compared to KvK segment
Table 3 : Means and Standard Deviations of Small SME relative to family and
non family owned small SME
Table 4 : Intention to use finance in small SME
Table 5 : Use of finance in small SME
Table 6 : Amount and percentage of small SME relative to family and non-family
owned small SME
Table 7 : Use of finance in small SME for innovation
Table 8 : Amount and percentage of generation of ownership of family owned small SME
Table 9 : Amount and percentage of CEO tenure of family owned small SME
Table 10 : Amount and percentage of working people (including the entrepreneur) family vs non family SME
Table 11 : Amount and percentage of turnover in euro of family vs non family owned small SMEs
Table 12 : Correlations of Small SME relative to family and non family owned small SME
Table 13 : Results of regression analyse of all the hypotheses: probability and prediction of finance intention and behavior in small family owned SME
Table 14a : Detailed results of multiple logistic regression to predict the effect of family firm on the use of internal fund for finance in family owned relative to non-family owned small SME (hypothesis 1.a )
Table 14b : Detailed results of multiple logistic regression to predict the effect of
family firm on the intention to use external debt for finance in family owned relative to non-family owned small SME (hypothesis 1.b )
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Table 15 : Detailed results of multiple logistic regression to predict the effect of innovation on the use of external debt for finance in family owned relative to non family owned small SME (hypothesis 2)
Table 16 : Detailed results of multiple logistic regression to predict the effect of high generation of ownership on the the use of external debt for finance in family owned small SMEs (hypothesis 3)
Table 17 : Detailed results of multiple logistic regression to predict the effect of high CEO tenure on the intention to use external debt in family
owned relative to non family owned small SMEs (hypothesis 4)
Figures
Figure 1 : model of Theory of Planned Behavior
Figure 2 : hypothesis model of financial decision making in capital structure based
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1. Introduction
1.1 Background of the study
In 2010 the Netherlands counted for about 260,000 family businesses, which was more than 69% of all businesses, excluding the self-employed. Dutch family businesses contrib-uted 53% to the Dutch Gross Domestic Product, whilst they accounted for 49% of all working people in the Dutch economy. Family businesses represented the majority of firms in eight out of nine sectors, with the one exception being financial services (43% being family firms). The highest proportion of family businesses were found in agriculture and fishing (87%) and other services (Flören R., Uhlaner L., & Berent-Braun M., 2010). They are valuable to the Dutch economy for the creation of jobs but also for the innovation that they bring (Snijders & Laar, 2002). Astrachan et al. (2003) and Zahra (2005) stated that family firms are known as a major source for entrepreneurship and innovation. So family owned SMEs make invaluable contributions to the Dutch economy and they are also part of the renewal process necessary for a vibrant economy. They are incubators and experimenters of technological changes, in-novations and productivity growth. But in order to innovate and grown SMEs need credit and follow different paths in their search for financial capital and way of structuring it.
This research links together disparate literature on family firms, SMEs, and their choices and decisions in capital structure. The literature is not exhaustive and complete about the differences between and among family firms relative to non-family in their finance inten-tion and behavior and more detailed research is needed to answer the quesinten-tion why Dutch family firms engage in certain forms of financing.
1.2 Statement of the problem
Research on innovation endeavors in family and non-family owned SMEs (Habber-shon & Williams, 1999) endorses the generally expected supposition that innovation increases long-term economic performance, essential to gain competitive advantage and longevity. But SMEs need financial capital to persue this advantage and obtain longevity. This makes access to sufficient and appropriate financial capital one of the most critical resources for SMEs (Chua, Chrisman, Kellermanns, & Wu, 2011; Molly, Laveren & Jorissen, 2012).
10 In their search for financial capital and way of structuring it, CEOs of SME make dif-ferent choices and decisions (Barton & Gordan, 1987, 1988; Casson, Martin & Nissar, 2008; Carney & Gedaljlovic, 2002; Klein, Astrahan, & Smyrnios, 2005; Zellweger, 2007).
Early research on capital structure decisions and choices used traditional capital structure theories, (trade-off theory or pecking order theory) as a framework of analysis (López-Gracia &Sánchez-Andújar, 2007) and assumed rational behaviour of managers aimed at cost minimi-zation (Chrisman, Chua, & Litz, 2004; Myers & Majluf, 1984) or balancing debt level (Modi-gliani & Miller, 1963).
However recently research done on SME has shown that capital structure in family firms is distinct from non-family firms (Anderson, Mansi, & Reeb, 2003; Koropp, Grichnik, & Kellermanns. 2013; McConaughy, Matthews, & Fialko, 2001; Wu, Chua, & Chrisman, 2007). Explanation of this difference is provided by the research done on the importance of preferences and norms in family firms (Sharma, Chua, & Chrisman, 2005): family firms pref-erences and norms, like long-term horizon, influence their decisions (Chrisman, & Patel, 2012, Sharma, Chrisman, & Chua, 2003). Using noneconomic and social psychology insights from the theory of planned behavior (Azjen, 1991) as a model for analyzing capital structure decisions enables me to incorporate the importance of family norms and preferences in capital structure decisions (Hoffman et al.,2006; Aldrich & Cliff, 2003; Sirmon & Hitt: 2003). Planned behavioral agency model suggests that family firm's norms, attitude and risk propen-sity toward external debt and equity affects their capital structure intentions and behavior.
Suppositious family firms norms like loss-averse (Chrisman, & Patel, 2012) and pres-ervation of socioemotional wealth (Berrone et al., 2010; Gómez-Mejía et al., 2007), gives them a low risk propensity (Wiseman & Gómes-Mejia, 1998) towards external debt and eq-uity. Also are family firms supposed to be more averse to control risk (Gallo et al., 2004), the risk of losing control, than non-family firms. By assuming that family firms don't want to lose control and have a long term horizon endures the predicting that family firms prefer financing their investment needs with internal funds and have less need for external equity cq debt rela-tive to nonfamily firms (Korop et al, 2014; Mishra, C., & McConaughy, 1999).
However, behavioral agency model and socioemotional wealth predictions are incon-sistent with research outcomes that family firms usually have a higher risk propensity towards investment concerning innovations (Cassia, Massis, & Pizzurno, 2012; Massis, Frattini, & Lichtenthaler, 2012; Zahra, 2005) and that because of their long-term investment horizon
11 (Chrisman et al., 2004; Zellweger 2007) they are more likely to use external equity and debt for innovation relative to nonfamily firms.
Also research shows that over time family firms become resistant to change and fol-low conservative strategies (Shepherd & Zahra, 2003) that again limits this above mentioned higher risk propensity. Theorizing this presumes that family firm risk propensity decreases when next generation of family involvement (e.g., Molly, Laveren, & Deloof, 2010) or dura-tion of CEO tenure increases (Zahra, 2005) which makes family firms less likely to use exter-nal equity and debt for innovation relative to non family firms (Beck, Janssen, Debruyne, & Lommelen, 2011).
1.3 Research question and contribution to science
By proposing the question: "Is there a difference, and how can this be explained, in investment intention and behavior between and among Dutch family firms and non family firms?" this research aims to call for a more detailed answer on the question why Dutch family firms engage in certain firms of financing. I will develop a few hypotheses based on a theo-retical framework and testing them statistically and so answers might be found.
Although a lot of research is already done on capital structure decision making (Benavides-Velasco, Quintana-García, & Gusmán-Parra, 2013) the focus was mainly on large international enterprises (Sharma, Chrisman, & Gersik, 2012) that makes that less is known about the explanatory factors in the relationship between investment intention and behavior in Dutch family owned SME. Consequently analyzing strategic choices Dutch family firms make in their search and need for finance, one of the most critical resources in order to growth and survival, will contribute furthermore to the field of family business capital structure stud-ies.
In my study I expand the traditional capital structure models with noneconomic and social psychology insights from the theory of planned behavior and applying this on current (april 2015) research done among Dutch SMEs with regards to their investment intention and behavior. In my analysis I will also expand prior research (Heyman, Deloof, & Ooghe, 2008;
12 Wu et al., 2007) done on capital structure decisions by simultaneously taken into accounting investment intention & behavior, generation of family involvement and duration of CEO ten-ure.
Therefore this study contributes to the family firm literature in three ways. First it sheds more light on the reasons behind financial decision making in Dutch SME and family firms by recognizing that unique family firms features influence their finance intention and behavior. Second, by simultaneously analyzing investment intention & behavior, generation of family involvement and duration of CEO tenure in Dutch SME we obtain a more compre-hensive perceptive on the differences between and among family and non-family firms. Last, I contribute to the theory of family firm and expand recent research on family firm capital structure decision making by establishing that noneconomic and psychological variables can influence finance intention and behavior.
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2. Literature review and theoretical development
2.1 Literature review
The academic study of family business as a distinct and important category of com-merce has developed since the early 1980s (Astrachan, 2003) since it is generally acknowl-edged that family owned SMEs play a significant role in the global economy (Anderson and Reeb, 2003a: Chrisman et al., 2008) and that they are also the most dominant form of eco-nomic enterprise throughout the world (La Porta et al., 1999). The field of family business studies distinguishes itself from its sister disciplines by its singular focus on the paradoxes caused by the involvement of family in the business (Sharma, Chrisman & Gersick, 2012). For this purpose main trends in family business literature were issues on succession (17.4 %), followed by management and organizational theory (15%), governance (9.9%), interpersonal family dynamics (7.8%) and financial management (7.2%) (Benavides-Velasco, Quintana-García & Guzmán-Parra, 2013).
Family owned SMEs are the engines of the Dutch economy and it has been recognized that financing plays a key role in the growth (Wu et al., 2007). The most basic decision prob-lem in business financing is the capital structure decision, whether to finance with debt or equity. First capital structure theory about how SMEs make the decision between debt and equity, traces its root to Miller and Modigliani (1961) and assumed that managers were ra-tional and choose and leverage debt by balancing cost and tax benefits or minimization of debt costs (Meyers & Majluf, 1984).
Later on research showed that family firms perform better because of who they are due to their uniqueness of family business culture and values (Chua et al., 1999) these findings are consistent with those of Amore, Minichilli, & Corbetta (2011) that finance in family firms is distinct from non-family firms and that family firms follow a financial logic driven by both economic and noneconomic motives (Gallo, Tapies, & Cappuyns, 2004). Family firms even prefer relative to non-family firms financing with internal funds if this option is less economic profitable and are less willing to use external debt and equity as finance form due to control issues (Casson, 2008).
14 Here you can infer that family owned SMEs not only base their financial choices and decision on rational economic motivation but also on personal preferences with regards to the use of internal fund, equity and debt for finance. So in order to assess adequately financial decision making and its variations among family firms, capital structure models need to be expanded to take family norms and decision-maker attitudes into account. For the intention of this research I adapt the theory of planned behavior to analyse family CEOs intention and behavior with regards to finance decisions and extend Koropp et al. (2013) research by invest-ing Dutch owned SMEs.
2.2 Theory
of Planned Behavior (TPB) and family owned SMEs finance
intention and behavior
Consistent with findings of Sharma et al. (2003) that family norms and values influ-ence CEOs behavior, I will use Ajzen's (1991) theory of planned behavior to study financial decision making and behavior in family firms. Icek Ajzen theory is grounded in the theory of reasoned action.
The Theory of Reasoned Action (TRA) suggests that a person's behavior is determined by his/her intention to perform the behavior and that this intention is, in turn, a function of his/her attitude toward the behavior and his/her subjective norm. The best predictor of behav-ior is intention. Intention is the cognitive representation of a person's readiness to perform a given behavior, and it is considered to be the immediate antecedent of behavior. This inten-tion is determined by their attitude toward the specific behavior.
The theory of planned behavior holds that only specific attitudes toward the behavior in question can be expected to predict that behavior. In addition to measure attitudes toward the behavior, we also need to measure people’s subjective norms – their beliefs about how people they care about will view the behavior in question. To predict someone’s intentions, knowing these beliefs can be as important as knowing the person’s attitudes. Finally, per-ceived behavioral control influences intentions. Perper-ceived behavioral control refers to people's perceptions of their ability to perform a given behavior. These predictors lead to intention. A
15 general rule, the more favorable the attitude and the subjective norm, and the greater the per-ceived control the stronger should the person’s intention to perform the behavior in question.
Since finance decisions in family firms are usually made by a single decision maker, typically an owner-manager (Feltham et al.,2005; Heck, 2004), makes the theory of planned behavior a very powerful and predictive model for explaining human behavior in family owned SMEs capital structure decisions and choices.
I will use this theory to analyze family firm financial decision making between multiple fi-nancing options (external debt, external equity and internal funds). However whereas the TPD analyses and measures attitude, subjective norms and perceived behavior control my research only uses this theory to derive and find, and use them as assumptions in my hypothe-sis, typical family firms related issues that might influence the finance intention and behavior in family owned SMEs and predict the finance intention and behavior in family owned SMEs. Therefore I will also combine and expand the TPD with insights from classical finance theory and prior research done on capital structure decisions and take simultaneously into account finance intention & behavior, with issues as generation of family involvement, innovation and duration of CEO tenure.
Figure 1: model of Theory of Planned Behavior
attitude subjective norms perceived behavior control intention behavior
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2.3 Attitude & norms and perceived behavior control that predict finance
intention and behavior in family owned SMEs
Studies of capital structure show that the demand for finance often follows a pecking order. The pecking order hypothesis (POH) places external equity as the least preferred source of finance and predicts that firms will first look for internal, and then debt, finance (Meyers & Majluf, 1984). The pecking order is about the way firms prioritize their sources of financing (form internal financing to equity), preferring to raise equity as a financing means 'of last re-sort'. The theory maintains that firms adhere a hierarchy of financing sources and, hence, in-ternal funds are used first, and when that is exhausted debt is issued, and when it is not feasi-ble to issue any more debt, equity is issued. This subjective norm towards external debt and equity endorses the prediction that CEOs family owned SMEs are more likely to use internal fund for finance.
Independence and control objectives take precedence over financing requirements and lead to a truncated pecking order (Frank & Goyal, 2003) because of this perceived behavior control by family owned SMEs, family owned CEOs may be more averse to use external eq-uity and debt for finance. Argued from perspective of allocation of control rights (Klein et al., 2005) one would suspect that the problem between choosing internal fund, debt and equity involves the problem of deciding if ownership of the firm should be shared with non-family members.
As for family attitude it is said that CEOs of family owned SMEs have, because of the undiversified nature of their holdings and their desire for firm survival, strong incentives to minimize firm risk (Casson, 1999). They view their firms as an asset to pass to family mem-bers or their descendants rather than wealth to consume during lifetime, which suggests that they seek risk reduction strategies in their capital structure and have a desire to minimize the transaction of raising finance. Consequently mitigating risk will be manifested in their financ-ing policies, by usfinanc-ing internal funds for finance more often relative to non-family CEO's.
Objective norms like the assumption of classical firm theories that CEOs interests and its shareholders were perfectly aligned, and that financial decisions were in the shareholders interests didn't hold with the arise of the agency theory (Anderson & Reeb, 2003a). Agency perspective focuses on information asymmetries among managers, shareholders and bond-holders and due to this separation of ownership and control agency costs will arise. As these
17 costs of financial distress result from debt they offset the tax advantage of debt to certain ac-cent. Debt usually has tax benefits for a firm but it also brings obligations in the form of pay-ment of interest and return of the principle borrowed. Non family CEOs will act in their own interest and will seek short-term benefits at the costs of the risks of a possible bankruptcy and high interests. Suggesting that non-family CEOs prefer finance with debt and equity.
Research has shown that one can expect a lower exposure of family firms to agency costs (Daily & Dollinger, 1992; Fama & Jensen, 1983). Therefore according to Jensen (1986) one could argue that family firms have lower agency costs which in turn creates higher free cash flow and levels allowing the firm to rely less on debt as a form of financing. Conse-quently, we expect that CEOs of family owned SMEs will employ significantly lower levels of debt in their capital structure relative to CEOs of non-family SMEs and that we can also expect from this point of view that non-family CEOs are more likely to use external equity and debt for finance.
Accordingly I hypothesize as follow:
Hypothesis 1a: CEOs of family owned small SMEs make more use of internal funds for
finance than CEOs of non family firms.
Hypothesis 1b: CEO's of family owned small SME have a lower intention to use external
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2.4 Attitude & norms and perceived behavior control with regards to
inno-vation in family owned SMEs that predict finance intention and
behavior
Casson, Martin and Nisar (2008) research found a linkage between modes of financing and innovation endeavors in SMEs. They found different tactics and finance intention and behavior between family owned and non-family owned SMEs with regards to innovation. They argue that the impact of financial considerations on the investment decision may vary with the type of investment and with the source of the funds and that the control rights model predicts that outside investors (debt and equity) will only be involved when firms need major investment for innovation. Combining this with the generally known fact that family owned SMEs invest more in innovation relative to non-family owned SMEs (Zara, 2005)) one could suggest that risk taking is a distinct attitude in the entrepreneurial orientation of family firms and is positively associated with innovation (Naldi, Nordqvist, Sjöberg, & Wiklund, 2007). Concerning finance intention and behavior of innovation, family firms CEOs are likely to handle risk differently than non-family CEO (Fama& Jensen, 1983; Zahra 2005). Because the payoffs from innovation are uncertain and usually do not occur in the near term one could argue that family-firms CEOs have, relative to non-family CEOs, a higher risk propensity towards innovation and this influences their finance intention and behavior. These finding are in line with the predictions of pecking order theory that says that SMEs will borrow, rather than issue equity, when internal cash flow is not sufficient to fund capital expenditures but also indicates a higher family CEOs intention and behavior to use debt and equity for innova-tion relative to non-family CEOs.
Family firms view their firms as an asset to pass to family members, the firm is part of the family identity, or their descendants rather than wealth to consume during lifetime, which suggests that their family norms seek risk reduction strategies for bankrupt and pervade fam-ily firms to encourage in innovations which in return lead to competitive advantage, longevity and the ability to pass on their firm to the children. Consequently mitigating risk will be mani-fested in their financing policies, by employing financing forms with low probabilities of de-fault, which suggests a greater reliance on equity financing in their capital structure (Ander-son & Reeb, 2003b).
19 Arguments from agency theory that managerial opportunism is less of a problem in family firms relative to non-family managers suggests because they have rather safe jobs (Le Breton-Miller, 2006). Consequently perceived behavior control of family managers is that they do not need to increase their reputation in the market for executives by attaining strong short-term results at the expense of the long term. This long-term planning horizons pervades family firms also to encourage in innovations which in return lead to competitive advantage. But long term orientation is also intertwined with problems of intertemporal choice whereas costs and benefits of a particular decision fall into different time periods. Innovation decisions often involve an intertemporal choice. According to Block (2009) an intertemporal-choice problem in management decisions exits because occasionally the course of action that is best in the short term is not the same course of action that is best over long run. Generally, prob-lems of intertemporal choice involve a determination of the proper balance between the long and the short term. This choice is even more complicated when risk and uncertainty are in-cluded in the decision making process. Non family firms, and especially large firms, give more priority to maintaining profitability, to maintain share prices and avoid threats of take over rather than firm growth, ensuring longevity through growth in market share or sustained compatible advantage, obtained by innovation (Bergveld & Weber, 2011).
Following the above discussion one could assume that family firms due to their long term horizon, longevity and desire to pass the firm to the next family generation (Michael-Tsabari et al., 2014) have a higher need to balance this long horizon term and are more will-ing to accept the risk and uncertainty along with innovation investments and are more willwill-ing to go higher in the pecking order and use debt and equity to gain this relative to non-family firms.
Hypothesis 2: Innovation in family owned small SMEs is positively related to the use of
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2.5 Attitude & norms and perceived behavior control with regards to
generation of ownership that predict finance intention and behavior
in family owned SMEs
Based on findings of studies I argued above that CEOs of family owned SMEs use external equity and debt for innovation more often relative to CEOs of non-family SMEs. But we can also observe a difference between young and old family firms, i.e. first generation versus later- generation family firms with regards to finance intention and behavior for inno-vation.
Miller et al. (2008) introduced the stagnation perspective to the nature of family firms. This stagnation perspective can manifest itself in several ways, such as a lack of financial and managerial resources often found in family firms, risk averse and conservative behavior. He concludes that the stagnation perspective can become particular relevant to explain the char-acteristics and behavior of family business over generations. The stagnation perspective is supported by several studies and found evidence for a change in perceived behavior control, predicting the intention and use of debt for finance, after an intergeneration transfer took place (Bennedsen et al., 2007; Perez-Gonzalez, 2006). Molly, Laveren, & Deloof (2010) investi-gated post succession financial structure, and the effect of succession on finance intention and behavior and found that succession had an impact on the intention and use of external equity and debt for finance by CEO's of family owned SMEs. This is consistent with the findings of Miller & le Breton-Miller (2005) and Ward (1997b) that if generation of family ownership increases their attitude toward risk becomes more averse and lower their willingness to attract debt for finance of innovation. Also can an increase of the number of active and passive fam-ily shareholders after succession lead to intra famfam-ily conflict, higher dividend payout ratios and less attention to reinvesting retained earnings in innovation (Davis & Harveston, 1999).
As for family attitude this lower use of debt is a consequence of the family's desire to transfer a healthy company over different generations, thereby safeguarding the family's name and the lifework created by the founder (Romano et al., 2002). This makes that descendants are less willing to undertake risky activities, like investments for innovations who as we ar-gued already are generally known to have a long term and uncertain profitability horizon,
be-21 cause they usually have invested large amounts of capital for buying themselves into the company.
Norms like, the lower ability of family firms to attract debt financing after succession (Heyman et al., 2008), because of the large amount of capital already done for taking over the family business, also indicate that increase of generation of ownership is negatively related to the intention and use of external debt and equity for the finance of innovation.
Based on these insights, I therefore hypothesize together with Molly, Laveren and Deloof (2010) that one can expect to find a significant impact of increase in generation of family in-volvement on the financial structure of family firms and propose the following hypothesis:
Hypothesis 3: High generation of ownership is negatively related to the use of external debt for finance in family owned small SME.
2.6 Attitude & norms and perceived behavior control with regards to
dura-tion of CEO tenure in family owned SMEs that predict finance intendura-tion
and behavior
Based on findings of studies I argued above that family firms are widely recognized as a major source of innovation because they are more willing to accept risk and uncertainty as-sociated with innovation investments and also are more willing to use external debt and equity to finance this innovation relative to non family firms (Naldi et al., 2007).
But as for family attitude emperical research also consistently revealed that family firms tend to underinvest in (R&D) innovation relative to non family firms (Block, 2012; Chrismann & Patel, 2012) and that family firms balance their potential socioemotional gaines and losses associated with innovation (Gomez-Mejia et al. , 2014) which in turns affects their finance intention and behavior. Randoy & Goel (2003) found for example that founder-led firms intend to reduce their family involvement due to upcoming succession issues and de-ploy more hired managers. As a result this leads to a greater distance between managerial
22 objectives and the objectives of the firm owners which in turn affects the long term horizon because these managers are more pursuing wasteful opportunities for personal gain relative to family owners. Which makes them less willing to invest in innovation and use external debt for finance.
And norms like age and education also influence the use of external debt for finance like research showed that younger and less educated SME owners more actively use external financing relative to older and more educated SME owners (Vos et al., 2007). Zara (2005) also reported that length of CEOs tenure is negatively associated with entrepreneurial risk taking, especially on family firms emphasis on innovation.
Based on these research findings, I therefore hypothesize that one can expect to find a signifi-cant impact of increase of CEO tenure on the financial structure of family firms and propose the following hypothesis:
Hypothesis 4: High tenure of CEO is negatively related to the intention to use external
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2.7 Conceptual model
Based on the literature review, theoretical development and hypotheses, the research intends to follow following conceptual model:
Figure 2: hypothesis model of financial decision making in capital structure based on Theory of Planned Behav-ior (TPB)
*
Theory of Planned Behavior (not tested)
- + - + TPD* H4 H 1a H2 H3 innovation CEO Tenure family firm Use for finance: external debt internal fund external equity internal fund Intention to use for finance: internal fund external debt external equity H 1b generation of ownership -
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3. Method
3.1 Data Collection
I used a survey which was part of a greater research conducted by the Dutch Chamber of Commerce (Kamer van Koophandel) in association with the department of Knowledge and Innovation of the Hogeschool Utrecht. Purpose of the research was to get a more complete picture of the finance needs of Dutch SME. The questionnaire was drawn up in such a way that equation with the European SAFE surveys and the Panteia financing monitor (eg large enterprises) is possible.
The survey was plotted below the entrepreneur's panel of the Dutch Chamber of Commerce. This panel consist of 6,500 registered members and is representative of the Dutch SME both in terms of sector and size. This panel is asked, during the year, 6 times to fill in an online survey and always gets afterwards a rapport with the results of the research. The CEO's of the panel were asked to fill in the online survey about their investment intention and behavior and their needs for finance with regards to their firm during the last 12 months and their expecta-tions for the next 12 months.
In total are on march 24 2015, 6539 panel members invited to fill in this online survey. After a week they got a reminder to fill in the survey. The survey was closed on april 14 2015. In total 3183 members responded which makes the response rate 48.7%. The average complete time took 10 minutes and 45 seconds.
3.2 Sample description & reliability
The most evident characteristics of the collected data will be outlined below. Compared to the Dutch population 1 the sample can be described as follows.
1
25 Entrepreneurs without employees (in Dutch; ZZP) represent the biggest group (54.3%) within the sample, whereas Small SME was represented with 43.5%. The amount of small SMEs relative to ZZPs in the sample is less but higher compared to the Dutch population. In this research the focus is on small SME, with an amount of 2 up to 50 working people (including the entrepreneur).
Table 1: collected data compared to the Dutch population (KvK, 2015) Chamber of commerce segment
Company size amount
sample percentage amount Dutch population* percentage ZZP 1 wp** 1729 54.3% 878,850 67.5% MKB (Small SME) 2-49 wp** 1388 43.5% 412,958 31.7% MKB (Large SME) 50-249 wp** 71 2.2% 9,310 0.7% Total 3,188 100% 1,301,118 100%
* source: KvK: economic active persons
** reported in WP( = amount of Working People including the entrepreneur)
Comparing company size, measured by amount of working people, including the entrepre-neur, 1388 of the CEOs that responded belonged to small SMEs counting for 43.5 % of the sample, as 1729 responses, counting for 54.3%, were ZZPs. Only a small part of the re-sponses, 67 (2.2%), were CEOs of large SME.
Table 2: company size and amount compared to KvK segment Chamber of commerce
segment
Company size* amount percentage
ZZP 1 wp 1,729 54.3%
Small SME 2-49 wp 1,388 43.5%
Large SME 50-249 71 2.2%
Total 3,188 100%
The 95% confidence interval of the reported percentage of the Small SMEs is within a band-width of -2% to +2% which makes the reliability of the dataset enough for use of predictive statements and further analyse
The average number of employees pro firm is 3.1 WP and well comparable with the nationwide average of 3.22. Slightly more than half of the CEOs in the dataset is older than 50 years, with an average of 53.3 years, which is older than the average age of 47 of Dutch en-trepreneurs3, which contains a possible bias risk for the analyse. More than 63% has a high
2 source: Panteia/EIM, 2014 3
26 education level, which is enormously above the nationwide average of 40%4 and can perform a potential bias in the sample. The percentage of women in the sample is 16.7% which is sub-stantially lower than the nationwide average of 34%5. The latter two reported measurements contain a possible bias risk for the analysis.
3.3 Measurements of variables
In this section the variables will be described and I will explain how the variables, used in this research, are related and measured by means of the questions included in the survey. See the appendix for the complete questionnaire (in Dutch).
Dependent variables
For the analysis I used as dependent variables finance behavior and finance intention. For both finance behavior and finance intention the answers on questions involving the use and intention to use finance, the CEOs of small SME filled out in the questionnaire were clas-sified in one of the following categories (1) internal fund (2) external debt or (3) external eq-uity.
Internal fund was defined as: "not relying on borrowing or giving up control right so no
addi-tional shares of stock had to be sold or an addition (asset) security should be given".
Exter-nal debt was defined as: "relying on borrowing". And fiExter-nally exterExter-nal equity was defined as: "relying on borrowing and therefore giving up control right and/or additional shares of stock
had to be sold or an addition (asset) security should be given".
4 source: Zea, 2013. 5
27
Finance behavior
Finance behavior was measured by asking the CEOs, who completed the
question-naire, whether or not they had used finance the last twelve months. If they responded affirma-tive they were asked to specify this, by indicating which of the finance possibilities they had used. These answers were classified, based on the above mentioned definition into the catego-ries (1) use of internal fund for finance (2) use of external debt for finance and (3) use of ex-ternal equity for finance. In SPSS the data was recode nominal to analyse the effect of family owned relative to not family owned small SME on the use of internal fund for finance.
Finance intention
In almost the same way finance intention was measured. The CEOs were asked whether or not they had considered finance the last twelve month and if they responded af-firmative, they were again asked to specify this, by indicating which of the finance possibili-ties they had considered. These answers were also classified, based on the above mentioned definition, into the categories (1) intention to use internal fund for finance (2) intention to use external debt for finance and (3) intention to use external equity for finance. In SPSS the data was recode nominal to analyse the effect of family owned relative to non family owned small SME on the intention to use external debt for finance.
Independent variables
Family firm
Because the impact of family firms varies significantly depending on the definitions used (Lansberg et al.1988) scholars have been worrying from the start of the field of investi-gation about it. Researchers have traditionally started their definition of a family business by looking at the three areas of involvement in a business: ownership, management and succes-sion from one generation to the next (Astrachan & Shanker, 2003; Chua, Chrisman, &
28 Sharma, 1999; Sharma & Nordqvist, 2008). Also have scholars tried to measure how much influence families have in family owned SME' by using scale based on power, experience and culture to measure the amount of family influence (Klein, Astrachan Smyrnios, 2005). However despite the prevalance and impact of the definitions used of what a family firms is, due to limitations (like time and survey size) this was not part of my research and scope. To measure the variable family firm the CEOs simply were asked whether or not they considered themselves as a family firm or not. In SPSS the variable family firm was recode into di-chotomous data so the effect of family owned small SME relative to non family owned on the use of internal fund and external debt for finance and the intention to use external debt for finance could by analysed.
Innovation
To measure the variable innovation the CEOs, who reported that they had used one of the categories of finance (internal fund, external debt and external equity) the past twelve months, were prompted to indicate for which purpose the finance was needed. If they used the finance for the purpose of process, product or service innovation it was indicated as innova-tion. In SPSS this variable was recode into dichotomous data and because the data was cate-gorical, dummy coding was used, so the effect of innovation could be measured on the use of external debt for finance in family owned relative to non family owned small SME.
Generation of ownership
The variable generation of ownership was measured by asking the CEO's of family owned small SME to what generation of owners they belonged. The possible answer they could give in the questionnaire was classified in the following categories (1) first (2) second (3) third (4) fourth and (5) fifth. In SPSS the data was recode both in nominal and ordinal val-ues and here also dummy coding was used for the purpose of using this categorical data to
29 analyse the effect of generation of ownership on the use of external debt for finance in family owned small SME.
CEO tenure
The variable CEO tenure was measured by asking the CEO's to indicate how long the already run the small SME. The possible answer they could give in the questionnaire was classified in the following categories (1) 0-5 years (2) 6 - 10 years (3) 11 - 15 years (4) 16 - 20 years and (5) 21 and more years. In SPSS the data was recode both in nominal and ordinal values and dummy coding was used for the purpose of using this categorical data to analyse the effect of duration of CEO tenure on the intention to use external debt for finance in family owned relative to non family owned small SME.
Control Variables
firm size
The variable firm size was measured by asking the CEO's to indicate how many work-ing people, includwork-ing the entrepreneur himself, the firm counted. The possible answer they could give in the questionnaire was classified in the following categories (1) 1 (2) 2-4 (3) 5-9 (4) 10 -19 (5) 20-44 (6) 50-99 (7) 100-249 (8) 250 and more. For the purpose of my research I defined Small SME, following the classification of the Dutch Chamber of Commerce, as: "2
up to 49 working people including the entrepreneur". In SPSS the data was recode in nominal
data and dummy coding was used so the variable could serve as control variable for analys-ing the effect of CEO tenure and Innovation on the use, and intention to use, of internal fund, external debt and external equity for finance in family owned relative to non family owned small SME. And to serve as control variable for analysing the effect of generation of
owner-30 ship on the use and intention of internal fund, external debt and external equity for finance in family owned small SME.
turnover
The variable turnover was measured by asking the CEO's to indicate, in Euro's, their turnover in the last year. The possible answer they could give in the questionnaire was classi-fied in the following categories (1) up to 50,000 (2) 50,000 - 100,000 (3) 100,000 - 250,000 (4) 250,000 - 500,000 (5) 500,000 - 750,000 (6) 750,000 - 1 million (7) 1 - 1.5 million (8) 2.5 - 4 million (9) 4-8 million ( 10) 8 - 16 million (11) 16 - 23 million (12) 23 million and more. In SPSS the data was recode in nominal data and dummy coding was used so the variable could serve as control variable for analysing the effect of CEO tenure and Innovation on the use and intention of internal fund, external debt and external equity for finance in family owned relative to non family owned small SME. And to serve as control variable for analys-ing the effect of generation of ownership on the use and intention of internal fund, external debt and external equity for finance in family owned small SME.
3.4 Statistical procedure
Here a brief description, before reporting the results in the next chapter, of the statisti-cal approach that was taken in order to test for the expected relationships, as discussed in the previous chapter, is given. First screening took place on missing data. No missing data was found. After this frequencies distribution and normality check took place. Variables that didn't show a normal distribution were recoded in new variables and because categorical variables were used to predict the outcome, dummy coding was used so logistic regression was possi-ble. After this several analysis were done. To start with the descriptive analyse of the sample. Here means, standard deviation and pivot tables were computed of the variables used. After this the spearman correlation matrix was created to check the correlation between the vari-ables and at last regression was undertaken to test the hypothesized direct and moderation effects between the variables and the outcome.
31 Hierarchically (stepwise) binary logistic regression was undertaken in order to first (1) detect if and to what degree the use of the variables included in the hypothesis had a predic-tive effect on the use or intention to use internal fund, external debt or external equity for fi-nance in family owned relative to non family owned small SME and secondly (2) if it was a significantly predictor of the use of internal fund, external debt and external equity for finance and the intention to use internal fund, external debt and external equity for finance. The hy-pothesized, for each of my hypothesis, association with the variables included is as follows: hypothesis 1.a: Logit ∫ P(NFBif=1)⌡= Constant + β1SIZEc + β2TURNOVERc +
β3 FAMILYFIRMc +
ε
chypothesis 1.b: Logit ∫ P(NFIed=1)⌡= Constant + β1SIZEc + β2TURNOVERc + β3 FAMILYFIRMc +
ε
chypothesis 2: Logit ∫ P(NFBed=1)⌡= Constant + β1SIZEc + β2TURNOVERc + β3 FAMILYFIRMc + β4 INNOVATIONc +
ε
chypothesis 3: Logit ∫ P(NFBed=1)⌡= Constant + β1SIZEc + β2TURNOVERc + β3 GENERATION OF OWNERSHIPc +
ε
ihypothesis 4: Logit ∫ P(NFIed=1)⌡= Constant + β1SIZEc + β2TURNOVERc + β3 FAMILYFIRMc + β4 TENUREc +
ε
cWhere:
NFBif is the dependent variable with a value of 1 if the CEO used internal fund for finance
and 0 if he didn't. P( NFBif=1) is the conditional probability that the CEO used internal fund for finance , NFIed is the dependent variable with a value of 1 if the CEO intended to use external debt for finance and 0 if he didn't. P( NFBif=1) is the conditional probability that the CEO intended to use external debt for finance and NFBed is the dependent variable with a value of 1 if the CEO used external debt for finance and 0 if he didn't. P( NFBed=1) is the conditional probability that the CEO used external debt for finance.
FAMILYFIRMc is a dichotomous variable with the value 1 if the CEO considered his firm as a
family owned small SME and a value of 0 if he didn't.
INNOVATIONc is a dichotomous (dummy) variable with the value 1 if one of the three
cate-gories of innovation - product, process or service- was indicated by the use of or the intention to use internal fund, external debt or external equity for finance and with the value 0 if not.
32
GENERATION OF OWNERSHIPc is a dichotomous (dummy) variable with the value 1 if one
of the following 5 categories- First Generation, Second Generation, Third Generation, Fourth Generation and Fifth Generation- was indicated by the use of or the intention to use internal fund, external debt or external equity for finance and with the value 0 if not.
TENUREc is a dichotomous (dummy) variable with the value of 1 if one of the following
four categories - Short, Medium, Long and Very Long - was indicated by the use of or the intention to use internal fund, external debt or external equity for finance and with the value 0 if not.
SIZEc is dichotomous (dummy) variable with the value of 1 if one of the following three categories - Small size, Medium Size and Large Size - was indicated by the use of or the in-tention to use internal fund, external debt or external equity for finance and with the value 0 if not.
TURNOVERC is a dichotomous (dummy) variable with the value of 1 if one of with the
fol-lowing five categories - Low turnover, Low medium turnover, Medium turnover, High turn-over, and Very high turnover - was indicated by the use of or the intention to use internal fund, external debt or external equity for finance and with the value 0 if not.
Below first descriptive analyses of the research is reported, starting with the means and standard deviation of all the variables of family relative to non-family owned and total Small SME. This is followed by a more detailed descriptive of each variable individually. After this the correlation matrixes will be discussed and subsequently the results from the regression analysis will be outlined. The results of the regression analyse will be discussed, and ranked by number of the hypotheses also are tables presented, all together and individu-ally, of the results of the regression of the tested hypothesis.
4.1 Descriptive analyses
All variables
An overview of the descriptive statistics, means and standard deviations of all the variables is reported in table 3. The table shows the means and standard deviation of all small SMEs in the sample relative to family and non-family owned SME. At first sight the means of the dependent variables: use of internal fund, external debt and equity of family and non-family owned SMEs (.0127/.0103/, .0737/.0485, .0496/.0250), is slightly different relative to small SME (.0115, .0613 and .0375). All the means of the dependent variable: intention to use are more or less equal. Whereas the means of CEO tenure in family owned SME (3.3187) is high relative to non-family owned small SME (2.7562). The means of the variable innovation in family and non-family owned SME are more or less equal and also are the means of the control variables size and turnover in family owned small SME relative to non-family owned SME. The mean of the variable generation is not reported for non-family owned small SME because this measures the generation of ownership.
34 Table3: Means and Standard Deviations of Small SME relative to family and non family owned small SME
Small SME
All Family Non-family
N= 1387 N= 706 N= 681
Variables M SD M SD M SD
1. Size. 2.7008 .98357 2.7337 1.00350 2.6667 .03686
2. Turnover 4.3617 2.64743 4.5344 2.73341 4.1834 .09790
3. Use of internal fund .0115 .10682 .0127 .11226 .0103 .00387
4. Use of external debt .0613 .23994 .0737 .26139 .0485 .00823
5. Use of external equity .0375 .19003 .0496 .21722 .0250 .00598 6. Intention to use internal fund .1420 .34921 .1388 .34599 .1454 .01352 7. Intention to use external debt .2487 .43244 .2720 .44528 .0247 .01601 8. Intention to use external equity .1846 .38809 .1997 .40007 .1689 .01437
9. Generation 1.4910 .50010 1.5255 .86216 - -
10. CEO tenure 3.0425 .18530 3.3187 1.53230 2.5620 .05740
11. Innovation 1.5408 .38867 .1884 .39130 .1821 .01480
Variables individually
In order to provide a more detailed statistic descriptive each variable will be further explored individually. The results are shown in the tables below.
Dependent variables
Finance intention
The total CEOs reported amount (197) of intention to use internal fund for finance was almost equally split between family and non-family small SMEs. This amount was not equal for the intention to use external debt for finance: family 192 out of 345 (56%) vs non-family 153 out of 345 (43%). The intention to use external equity for finance was reported for family firms 141 out of 256 (45%) and non-family firms for 115 out of 256 (45%).
35 Table 4: intention to use finance in small SME
Finance intention amount percentage
family Non-family total family Non family
Internal fund 98 99 197 22.7% 27.0%
External debt 192 153 345 44.5% 41.7%
External equity 141 115 256 32.8% 31.3%
Total 431 367 798 100% 100%
Finance behavior
The total CEOs reported amount of use of finance (143) consisted for 59% (amount 85) of external debt. Family firms reported a use of 52 external debts for finance, which is 61% of the total for external debt. Also reported CEOs of family owned small SMEs a higher use of internal fund relative to non-family firms (amount of 9 vs 7). 56% of total use of inter-nal funds for finance consisted of family firms. But they reported also a substantial (66%) use of the total amount (35) of external equity for finance.
Table 5 : use of finance in small SME
Finance behavior
amount percentage
family Non-family total family Non family
Internal fund 9 7 16 9.3% 14.9% External debt 52 33 85 54.2% 70.2% External equity 35 7 42 36.5% 14.9% Total 96 47 143 100% 100% Independent variables Family firms
From the respondents 36% considered themselves as a family firm. 706 CEOs of small SME named their firm a family firm, which is 51% off all the CEOs of the small SMEs. The dataset almost consists equally of family and non family SMEs.
36
Table 6: amount and percentage of small SME relative to family and non-family owned small SME
Family firm ZZP 1 wp Small SME 2-40 wp Large SME 50-249 wp Total percentage ZZP 1 wp Small SME 2-40 wp Large SME 50-249 wp Yes 392 706 30 1,128 35% 23% 51% 42% No 1,337 682 41 2,060 65% 77% 49% 57% Total 1,729 1,388 71 3,188 100% 100% 100% 100% Innovation
The CEOs were prompted to indicate for which purpose the finance was needed. Use of finance for the purpose of process, product service innovation was indicated as innovation. In total 436 cases of use of finance for innovation were reported. Using the filter for small SMEs this resulted in an amount of 257. Family firms reported a use of finance for innovation of 133 and non-family firms 124.
Table 7: use of finance in small SME for innovation
use of finance for innovation amount Percentage Small SME Percentage SME
family Non-family total family Non family total
Small SME 133 124 257 52% 48% 59%
others 179 41%
Total 436 100%
Generation of ownership
A substantial part, 65.7% and 464 out of 706, of the Small SME CEOs was first gen-eration family member. Second and third gengen-eration of family owners accounted for 214 which is 31%. Only 3.3% of the CEOs of the Small SME consisted of fourth and fifth genera-tion of ownership.
Table 8: amount and percentage of generation of ownership of Small family owned SME
Generation amount Percentage
first 464 65.7% second 147 20.8% third 72 10.2% fourth 12 1.7% fifth 11 1.6% Total 706 100%
37
Duration of CEO tenure
The tenure of the CEOs of family owned SMEs was measured in equal intervals up to 21 years and more. In the range of 0 to 20 years the amount and percentage of the intervals was more or less equal, between 15% and 17.4% of the total of 706. But in one interval the collected data consist for 33.3%, 235 of the 706 in total, of CEOs in tenure more than 21 years.
Table 9: amount and percentage of CEO tenure of family owned small SME
CEO tenure in years amount percentage
0-5 123 17.4% 6-10 126 17.8% 11-15 109 15.5% 16-20 106 15.0% 21* 235 33.3% Not owner 7 1% Total 706 100% Control Variables firm size
Of the total responses of 3,188 an amount of 1,128 out (35%) considered themselves as a family firm. The total amount of family firms consisted of 392 (35%) ZZPs, 706 (62%) small SMEs and 30 (3%) large SMEs. The total amount of non-family firms among responses was 2,060 (65%) and consisted of 1,337 (65%) ZZPs, 682 (33%) small SMEs and 41 (2%) large SMEs. In both family and non-family firms the majority part of responses, 1,729 out of 3,188 (54%), came from ZZP followed by 1,388 (44%) of small SMEs. Only 41 (2%) re-sponses came from large SMEs.
38 Table 10: amount and percentage of working people (including the entrepreneur) family vs non family SME
Working people (including the entrepreneur)
amount percentage
family Non-family Total family Non-family Total
1 392 1,337 1,729 12.3% 42% 54.3% 2-4* 406 410 816 12.74% 12.86% 25.6% 5-9* 150 144 294 4.86% 4.24% 9.2% 10-19* 82 72 154 2.58% 2.22% 4.8% 20-49* 68 56 124 2.2% 1.7% 3.9% 50-99 14 18 32 .43% .57% 1.0% 100-249 9 11 20 .29% .31% 0.6% ≥ 250 7 12 21 .21% .29% 0.5% Total 1,128 2.060 3,188 100% 100% 100% * small SME turnover
91% (total amount of 643 out of 706) of the turnover of family owned small SME was below 1.5 million relative to 89% (613 out of 682) of non-family owned. 60 % (421 out of total amount of 706) of family owned small SMEs and 68% (466 out of total amount of 682) of non-family owned small SMEs reported a turnover between 0 and 500,000 euro. Whereas family owned SMEs (20 out of total amount of 26: 77%) were less willingly to report their turnover in the survey.
Table 11: amount and percentage of turnover in euro of family vs non family owned small SMEs
Turnover in € amount percentage
family Non-family Total family Non-family Total
≤50,000 73 64 137 5.3% 4.6% 9.9% 50,000 - 100,000 88 102 190 6.4% 7.4% 13.8% 100,000-250,000 151 169 320 11% 12.2% 23.2% 250,000-500,000 109 131 240 7.9% 9.5% 17.4% 500,000-750,000 63 52 115 4.5% 3.8% 8.3% 750,000-1 million 38 33 71 2.7% 2.3% 5% 1 - 1.5 million 68 50 118 5% 3.6% 8.6% 1.5 -2.5 million 53 12 65 3.8% 0.8% 4.6% 2.5 - 4 million 4 28 32 0.3% 2% 2.3% 4 - 8 million 23 19 42 1.6% 1.4% 3% 8-16 million 11 10 21 0.7% 0.7% 1.4% 16 - 32 million 1 2 3 0.01% 0.1% 0,11% ≥ 32 million 4 4 8 0.3% 0.3% 0.6% No report 20 6 26 1.4% 0.4% 1.8% 706 682 1.388 50.9% 49.1% 100%
39
4.2 Correlation matrix: variables of small SME relative to family owned
and non family owned
The correlation of all the variables used in the analysis is shown in table 12. A first observation derived from the table is that the correlation between the different variables in-cluded in the spearman correlation matrix is almost everywhere positive. The exception on this is the negative correlation of innovation (p=-.096 for family owned and p=-.077 for not family owned) with CEO tenure which could provide support for the assumption that if CEO tenure increases the innovation decreases. However the significance is not high and more close to zero than 1 and also it is not part of the hypotheses tested. Another negative correla-tion is that of CEO tenure with the intencorrela-tion to use internal fund (p=-.090 for non-family owned and –p=.070 for all SME) and CEO tenure with the intention to use external debt (p=-.077 for non-family owned). The last, however only significant for non family owned small SME and very low, point outs very gently for support of the assumption that the use of exter-nal debt decreases if tenure of CEO increases.
As where I assumed that the use of external debt would decrease if generation of own-ership increases the correlation matrix even shows a positive correlation of generation with the use of external debt (p=.102) and also shows a stronger correlation with turnover (p=.262) and size (p=.200). The last indicating that the correlation of generation with the variables is more likely to support the assumption that increase of generation of ownership is related to the increase of size and turnover. However this assumption is not part of my hypothesis.
Relative to the other correlations already discussed the correlation between innovation and the use of internal fund (p=.107), external debt (p=.294) and external equity (.157) is more strong for family owned and also higher relative to non family owned small SME (p=.103, ,212 and .120) . Relative to the correlation between innovation and the intention to use internal fund (p=.362), external debt (p=.471) and external equity (p=.421) in family owned small SME this is even stronger and both indicating a positive finance behavior and intention with regards to innovation in family owned small SME. This could lead to the tenta-tive conclusion that the assumption that CEOs of family owned small SME use external debt for finance more often if the finance is needed for innovation will hold.
40 The matrix also shows a weak correlation of the use of internal fund with turnover (p=.077 for family owned and p=.093 for non family owned) and size (p=.059 for family owned and p= .127 for non family) but doesn't directly indicates a higher correlation between the use of internal fund and family owned relative to non family owned small SME. As for the intention to use external debt the matrix also shows a higher correlation with turnover for family owned (p=.067) relative to non family owned (p=.044) small SME. This is the same for the correlation between intention to use external debt and size for family owned (p=.81) relative to non family owned (p=.099) small SME. The correlation between intention to use external debt for finance and size in family owned SME is actually the strongest correlation to be found but says nothing about the correlation between the intention to use external debt for finance in family owned relative to non family owned small SME. For this further analyse is needed.
