The agency costs of debt in private family firms

Abstract

This article presents empirical evidence on the existence of agency costs of debt in private family firms by considering the bank loan price as multidimensional. We estimate a simultaneous model consisting of an interest rate, business collateral and personal collateral equation. Using a cross sectional sample of lines of credit of the National Survey of Small Business Finance, results reveal that family firms are more likely to pledge personal collateral. No substitution with other debt terms seems to be possible. However, interest rate and business collateral can be considered as substitutes while family ownership does not affect these loan conditions.