Pound of flesh? Debt contract strictness and family firms

David Hillier, Beatriz Martinez, Pankaj C. Patel, Julio Pindado, Ignacio Requejo

Research output: Contribution to journalArticlepeer-review

13 Citations (Scopus)
66 Downloads (Pure)


While past work finds support for both higher and lower cost of debt among family firms, whether lower shareholder–creditor agency conflicts in family firms translate into greater ex-ante contracting efficiency (i.e., lower debt contract strictness) remains unexplored. Drawing on a shareholder–creditor agency framework and costly contracting theory, creditors, expecting firm value maximization rather than shareholder value maximization from family firms, may offer less strict debt contracts to increase contracting efficiency. We find in a sample of 716 publicly traded US firms (2001–2010) that family firms have less strict debt contracts, which are even less strict when family firms have higher asset tangibility. Although increases in R&D investments could lead to more pronounced shareholder–creditor agency conflicts, given family firms’ preferences for lower risk and growth, debt contract strictness among family firms is not positively associated with higher R&D intensity.
Original languageEnglish
Pages (from-to)259-282
Number of pages33
JournalEntrepreneurship Theory and Practice
Issue number2
Early online date26 Dec 2017
Publication statusPublished - 1 Mar 2018


  • debt contracts
  • family firms
  • financial covenant slack
  • asset tangibility
  • research and development


Dive into the research topics of 'Pound of flesh? Debt contract strictness and family firms'. Together they form a unique fingerprint.

Cite this