Financing European SMEs: The Case of Family Firms

Denis Walsh

Research output: Types of ThesisDoctoral Thesis


Globally more than 95% of firms are classified as SMEs (Beck, 2013), while in Europe SMEs account for 99.8% of all enterprises and approximately 70% of all employment (European Commission, 2015; Ferrando et al., 2017). However, the largest subset of SMEs is family-owned firms. Yet few studies to date examine their financing apart from Chu (2009), Mazzi (2011), Carney et al. (2015). Whilst financial life cycle theory and trade-off theory have been found to offer a great deal of insight into the capital structure of SMEs, it is agency concerns and the pecking order hypothesis which have greater relevance to the financing decisions of family-owned firms. This research examines the sources of finance used by European family-owned SMEs in contrast to all other SMEs (notably solely owned firms and professionally owned SMEs) and assesses whether or not family firms are credit rationed. Using the ECBs SAFE survey from 2014 to 2017 the sample consists of circa 56,000 firm responses across twelve European countries. The study covers a unique period in the aftermath of the sovereign debt crisis and includes the five European countries who experienced the most profound effects of this crisis. A probit maximum-likelihood methodology is used to test hypotheses for source usage, applications for credit, the presence of borrower discouragement, and for different forms of credit rationing. Our findings suggest that family-owned SMEs are more likely to use retained earnings, grants and subsidised bank loans as well as bank credit lines, bank loans and trade credit. Conversely, the results indicate that family firms do not favour using other loans, equity capital, leasing and hire purchase and other sources of finance. The assertion is that their preference is for more traditional sources of finance which do not involve any loss in control. Family-owned firms appear more likely to apply for bank credit with no evidence of them being discouraged borrowers or experiencing any form of credit rationing. The study confirms the applicability of pecking order, agency theory, financial lifecycle theory and trade-off theory. The study is timely in a period of relative economic stability intersecting the European sovereign debt crisis and the recovery support policies across Europe culminating in the formation of the Capital Markets Union (CMU) plan (European Commission, 2019). The study also contributes to the policy literature.
Original languageEnglish
Awarding Institution
  • O'Donohoe, Sheila, Supervisor
Publication statusUnpublished - 2021


  • European SMEs, Finance, Family firms


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