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Financial Decision Making in Family Firms: An Adaptation of the Theory of Planned Behavior
Christian Koropp, Franz W. Kellermanns, Dietmar Grichnik and Laura Stanley
Family Business Review published online 25 February 2014
DOI: 10.1177/0894486514522483

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FBRXXX10.1177/0894486514522483Family Business ReviewKoropp et al.

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Financial Decision Making in Family

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DOI: 10.1177/0894486514522483

Planned Behavior fbr.sagepub.com

Christian Koropp1, Franz W. Kellermanns2,3, Dietmar Grichnik1, and Laura

Stanley4

Abstract
Adapting the theory of planned behavior to the area of financial choices in family firms, we argue that these choices
in family firms are largely affected by family norms, attitude, perceived behavioral control, and behavioral intentions.
A time-lagged sample, estimated via structural equation modeling of 118 German family firms, supports a behavioral
approach to the study of financing decisions. Specifically, we show that family norms and attitude toward external
debt and external equity affect behavioral intention to use the respective financing choices, which in turn affects
financing behavior. Perceived behavioral control, however, was shown to negatively affect behavioral intentions to
use external equity and was positively related to the use of internal funds. Implications of these capital structure
decisions and ideas for future research are discussed.

Keywords
family firms, family norms, financial attitudes, financial decision making, theory of planned behavior

Access to sufficient and appropriate financial capital is
one of the most critical resources for firm growth and
subsequent survival, as it influences a firm’s ability to
realize investment projects and reduces its cost of capi-
tal (e.g., Beck & Demirguc-Kunt, 2006; Chua, Chrisman,
Kellermanns, & Wu, 2011; Hutchinson, 1995; Molly,
Laveren, & Jorissen, 2012). Research has shown that
financing for family firms is distinct from other organi-
zations (e.g., R. Anderson, Mansi, & Reeb, 2003;
Andres, 2008; Koropp, Grichnik, & Kellermanns, 2013;
McConaughy, Matthews, & Fialko, 2001; Steijvers &
Voordeckers, 2009; Wu, Chua, & Chrisman, 2007), as
family firms follow a financial logic driven by both eco-
nomic and noneconomic motives (Gallo, Tapies, &
Cappuyns, 2004).
Although family firms follow an idiosyncratic financial
policy (Gallo et al., 2004), most research employs ele-
ments of traditional capital structure theories (primarily
trade-off theory or pecking order theory) as a framework
for analysis (e.g., King & Santor, 2008; López-Gracia &
Sánchez-Andújar, 2007). This theoretical approach, how-
ever, fails to account for the importance of preferences and
norms in family firms (e.g., Pearson, Carr, & Shaw, 2008;
Sharma, Chua, & Chrisman, 2005). Furthermore, little is
known about why family firms engage in certain forms of
financing. While some authors suggest that family firms
prefer using internal and family funds and thus carry less
debt than nonfamily firms (e.g., McConaughy et al., 2001;
Romano, Tanewski, & Smyrnios, 2001), others indicate
that family firms carry levels of debt similar to or greater
than nonfamily firms (e.g, Blanco-Mazagatos, de
Quevedo-Puente, & Castrillo, 2007; Coleman & Carsky,
1999; Wu et al., 2007). Accordingly, differences between
family and nonfamily firms with regard to financing need
to be further investigated.
1
University of St. Gallen, St. Gallen, Switzerland
2
University of North Carolina at Charlotte, Charlotte, NC, USA
3
Intes Institute for Family Business, WHU, Germany
4
East Carolina University, Greenville, NC, USA
Corresponding Author:
Franz W. Kellermanns, UNC Charlotte, 9201 University City Blvd.,
Charlotte, NC 28223, USA.
Email: kellermanns@uncc.edu

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2 Family Business Review 
Our study answers calls in the literature to expand
financial choice models by using noneconomic rationale
and incorporating insight from social psychology and
strategic management to research capital structure deci-
sions in privately held firms (Barton & Gordon, 1987,
1988; Beattie, Goodacre, & Thomson, 2006; Matthews,
Vasudevan, Barton, & Apana, 1994; Michaels, Cron,
Dubinsky, & Joachimsthal, 1988). We use the theory of
planned behavior (Ajzen, 1991) to frame our study. This
theory is found to be a promising framework for research
on decision making in family firms (e.g., Sharma,
Chrisman, & Chua, 2003). Subjective norms are at the
center of the theory of planned behavior. Ajzen (1991, p.
188) defines subjective norms as “perceived social pres-
sures to perform or not to perform the behavior.” Our
study focuses specifically on family norms, which are
defined as norms that can provide social control in fam-
ily businesses and thus impose obligations and expecta-
tions on behavior in family firms (Hoffman, Hoelscher,
& Sorenson, 2006, see pp. 137-138). In addition, we
incorporate behavioral intentions, attitudes, and per-
ceived behavioral control of the family firm decision
maker in our research model. Last, we expand prior
research (e.g., Heyman, Deloof, & Ooghe, 2008; Wu
et al., 2007) by simultaneously accounting for internal
funds, external debt, and external equity as alternative
financing sources of the family firm and test our time-
lagged model using structural equation modeling (SEM)
techniques with data from 118 German family firms.
This study contributes to the family firm literature
in three important ways. First, we broaden the under-
standing of family firm financial decision making by
recognizing unique family firm influences on financ-
ing decisions. We show that family firm influences
directly affect financing behavior and the resulting
capital structure of the firm. Second, because most
studies on family firm finance focus on debt financing,
we obtain a more comprehensive perspective by simul-
taneously analyzing debt and equity financing. Last,
we contribute to the theory of the family firm and com-
plement recent research on family firm financing (e.g.,
King & Santor, 2008; Parsons & Titman, 2008) by
showing that noneconomic variables can influence
financing behavior.
This paper is structured as follows. We begin by
briefly reviewing the theoretical and empirical literature
on financial decision making in family firms and subse-
quently develop hypotheses from our conceptual model.
Next, we explain our methodology and present the
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empirical results. Finally, we conclude with a discussion
of the results and their implications for researchers and
practitioners.
Literature Review and Theoretical
Development
Many of the early capital structure studies assumed
rational behavior of managers. For example, managers
select financial sources according to cost minimization
(Myers & Majluf, 1984) or choose the firm’s debt level
by balancing tax benefits and cost of debt (Modigliani &
Miller, 1963). Yet, early research has also highlighted
managerial choice and nonrational elements of decision
making as important aspects that need to be considered
in the way capital structure decisions are made (Barton
& Gordon, 1987, 1988).
Family firm research has indirectly adopted this
notion, as it suggests that family firms’ behavior, regard-
ing their financing decisions, is unique due to the specific
properties these firms possess. For example, research
suggests that family firms employ highly conservative
financial strategies and that generational influences and
managerial succession affect financing decisions
(Amore, Minichilli, & Corbetta, 2011; López-Gracia &
Sánchez-Andújar, 2007; McConaughy & Phillips, 1999;
Molly, Laveren, & Deloof, 2010). Family firm owners
are found to be averse to external financial sources
beyond traditional commercial banking and strongly pre-
fer internal financing (Romano et al., 2001; Sirmon &
Hitt, 2003): They often forgo growth opportunities rather
than endanger family control by issuing external equity
(Mahérault, 2004; Wu et al., 2007). Furthermore, family
firm owners invest most of their private funds in the busi-
ness (Poutziouris, 2001) or intermingle personal and
business finances (Haynes, Walker, Rowe, & Hong,
1999; Yilmazer & Schrank, 2006) instead of using exter-
nal financial sources. Indeed, there is an increasing body
of work on family firm financing (e.g., Amore et al.,
2011; Andres, 2008; Bagnoli, Liu, & Watts, 2011; Croci,
Doukas, & Gonenc, 2011; Koropp et al., 2013; Steijvers
& Voordeckers, 2009), which has produced a rather
diverse picture of family firm financing.
Together, this evidence suggests that financial choices
are not homogeneous and vary among family firms.
Because family firms are highly dependent on a single
decision maker, who is typically the owner-manager
(Feltham, Feltham, & Barnett, 2005; Kelly, Athanassiou,
& Crittenden, 2000), financing behavior in family firms
Koropp et al. 3
may be the result of personal attitudes of the owner-man-
agers. These attitudes are embedded into the family firm
context (see also Koropp et al., 2013). Thus, we argue that
family firms are likely to engage in a financial logic based
not only on rational economic motivation but also on per-
sonal preferences for growth, risk, and ownership control
(Gallo et al., 2004) and the family sphere. Thus, financial
decision making is affected by social control elements of
governance due to the overlap of the family and business
spheres (Mustakallio, Autio, & Zahra, 2002).
A highly salient element of social control that affects
decision making is family norms. Indeed, prior research
has shown the importance of family norms in a variety
of contexts, ranging from acquisition decisions to the
management of resources (Aldrich & Cliff, 2003;
Sirmon & Hitt, 2003). Therefore, we argue that financial
decision making in family firms is largely influenced by
norms held within the family (Mustakallio et al., 2002).
Specifically, the decision maker’s perception of these
family norms is of special importance within decision
making (Ajzen, 1991). Moreover, since owner-manag-
ers are usually the central decision-making unit in fam-
ily firms, especially for resource management tasks,
decision making is significantly influenced by owner-
manager attitudes and values (Heck, 2004). In order to
adequately assess financial decision making and its vari-
ations among family firms, capital structure choice
models need to be expanded to take family norms and
decision-maker attitudes into account.
Theory of Planned Behavior and Family Firm
Financing
Consistent with prior research on family firms and the
influence of family norms and values on the firm (e.g.,
Sharma et al., 2003; Stavrou, 1998), we use Ajzen’s
(1991) theory of planned behavior to study financial
decision-making behavior in family firms. This theory
explains and predicts human behavior that is not fully
under volitional control (Ajzen, 2002b). According to
the theory, behavioral decisions and the proximate
behavior are primarily determined by the decision mak-
er’s behavioral intentions. Behavioral intentions, in turn,
arise from three determining factors: attitudes, perceived
norms, and (perceived) behavioral control. Attitudes
refers to either favorable or unfavorable evaluations of
the likely consequences or attributes of a behavior.
Norms refers to the decision maker’s beliefs about the
expectations of significant others (e.g., family or friends)
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regarding whether to perform, or not perform, a behav-
ior. Behavioral control refers to the perceived ease or
difficulty of performing a behavior based on the deci-
sion maker’s belief about the presence of behavior-lim-
iting factors. In addition to an indirect effect via
intention, Ajzen (1991) considered perceived behavioral
control to directly influence behavioral decisions.
Prior research has utilized the theory of planned
behavior in various contexts (for meta-analysis, see
Armitage & Conner, 2001; Sheppard, Hartwick, &
Warshaw, 1988). For example, the theory has been
linked to entrepreneurial intentions (Krueger, Reilly, &
Carsrud, 2000), growth motivation in entrepreneurial
ventures (Delmar & Wiklund, 2008), exit intentions in
ventures (DeTienne & Cardon, 2012), succession in
family firms (Sharma et al., 2003), and career decision
to enter a family business (Zellweger, Sieger, & Halter,
2011). Indeed, the applicability of the theory of planned
behavior has been linked to first-time behavior (e.g.,
starting a venture or using new technology; Krueger
et al., 2000; Mathieson, 1991) and to more repetitive/
habitual behavior (e.g., health-related behavior; Godin
& Kok, 1996). For the purpose of our paper, we adopt
the theory of planned behavior to analyze family firm
decision making and combine it with insight from clas-
sical finance theory to model financial decision making
in family firms.
Financing decisions in family firms are usually made
by a single decision maker, typically an owner-manager
(e.g., Donckels & Fröhlich, 1991; Feltham et al., 2005).
Accordingly, the owner-manager’s values and beliefs
are significant drivers in strategic decision-making tasks
(Heck, 2004). Our model, which we elaborate on in the
next section, is displayed in Figure 1. It extends previ-
ous research on family firm financing (e.g., Blanco-
Mazagatos et al., 2007; Koropp et al., 2013; López-Gracia
& Sánchez-Andújar, 2007; Molly et al., 2012; Steijvers
& Voordeckers, 2009) by analyzing both the impact of
motivational elements (i.e., perceived family norms,
attitudes, and perceived behavioral control) on financial
decisions in family firms and the decision between mul-
tiple financing options (external debt, external equity,
and internal funds). Next, we develop the respective
hypotheses in greater detail.
Perceived Family Norms
Norms represent a central component of the theory of
planned behavior (Ajzen, 1991). Specifically, we focus
4 Family Business Review 

Perceived
Behavioral Control H4
Time 1

Perceived
Behavioral Control
Time 0 H3 Financing Decision
Time 1

External Debt
Attitude Toward Behavioral Intention
H2 to Use H5
External External Internal Funds
External External H6
Debt Equity Debt Equity
External Equity

H1

Perceived Controls
Family Norms Toward
Age Size
External External
Debt Equity
Post hoc Analysis/Controls

Profitability Growth Industry

Figure 1.  Hypotheses model of financial decision making in the family firm.
Note. Perceived behavioral control was measured at both t = 0 and t = 1, financing decisions at t = 1, and all remaining variables at t = 0.

on family norms, as they are important to the decision-
making process of family firms (Pearson et al., 2008),
due to the unique overlap of the family and business sys-
tems (e.g., Tagiuri & Davis, 1996). Indeed, the role of
the family has been shown to significantly impact entre-
preneurial decision making (Chang, Memili, Chrisman,
Kellermanns, & Chua, 2009). Norms represent internal-
ized agreements regarding accepted and expected
behaviors in a social system, against which the appropri-
ateness of behavioral decisions can be evaluated (e.g.,
Nahapiet & Ghoshal, 1998). Hence, they represent
social pressure to perform, or not perform, a certain
behavior (Fishbein & Ajzen, 1975). Norms are ingrained
in family members’ minds and are stable over time, thus
creating unique cross-generational influences on the
firm (e.g., Matthews et al., 1994; Sharma & Manikutty,
2005). Examples of family financing norms are not shar-
ing equity capital with nonfamily members (Sirmon &
Hitt, 2003) or relying solely on family and firm internal
financial sources for firm investments (Romano et al.,
2001).
Family norms serve as social control mechanisms for
decision-making processes in family firms (Hoffman
et al., 2006), especially when decisions involve the man-
agement of resources (Aldrich & Cliff, 2003; Sirmon &
Hitt, 2003). Accordingly, it is more likely that a decision
maker will form behavioral intentions to perform a cer-
tain behavior if he or she expects that closely related and
important people (e.g., family members) favor the behav-
ior in question (Ajzen, 1991). Thus, if family norms
favor debt over equity (e.g., Setia-Atmaja, Tanewski, &
Skully, 2009), these norms should affect financial choices

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Koropp et al. 5
via behavioral intentions. For the purpose of our paper,
we focus on behavioral intention to use external debt and
behavioral intention to use external equity. Formally
stated, we hypothesize the following:
Hypothesis 1a: Perceived family norms toward exter-
nal debt will be positively associated with the owner-
manager’s behavioral intention to use external debt.
Hypothesis 1b: Perceived family norms toward exter-
nal equity will be positively associated with the
owner-manager’s behavioral intention to use external
equity.
Financial Attitudes
Research has stressed that financial decision making in
family firms is largely influenced by the desire to main-
tain family control (e.g., Blanco-Mazagatos et al., 2007;
Gallo et al., 2004). Consequently, we expect that family
firms develop more positive attitudes toward internal
rather than external financing and to external debt rather
than external equity (Romano et al., 2001). Indeed,
research suggests that family firms follow a pecking
order by preferring internal over external and debt over
equity financing due to cost of capital and ownership
control (e.g., López-Gracia & Sánchez-Andújar, 2007).
Stated in terms of the theory of planned behavior, the
weighted sum of the decision maker’s behavioral beliefs
that are attributed to a certain behavior’s outcome form
his or her attitude toward the behavior in question
(Ajzen, 2001). Accordingly, attitude represents the deci-
sion maker’s positive or negative evaluation of a behav-
ior’s outcome (Fishbein & Ajzen, 1975). Applied to
financial decision making, the decision maker may con-
sider (a) how a financial source affects family control,
(b) the resulting cost of capital, or (c) information that
needs to be disclosed. Attitudes thus capture elements
such as the owner-manager’s previous experiences with
financial sources, financial knowledge, and/or goal ori-
entations (Koropp et al., 2013).
Therefore, family firm owner-managers develop dis-
tinct attitudes toward external financing for both debt
and equity. When confronted with behavioral alterna-
tives, individuals will decide to pursue the alternative of
which the most positive attitude is held (Jaccard, 1981).
A more favorable (positive) attitude toward a behavior
should lead to a stronger intention to perform that behav-
ior (Ajzen, 1991). Accordingly, we hypothesize that
more favorable attitudes toward debt and equity will
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affect the respective behavioral intention to use external
debt and external equity.
Hypothesis 2a: A favorable owner-manager’s attitude
toward external debt will be positively associated
with his or her behavioral intention to use external
debt.
Hypothesis 2b: A favorable owner-manager’s attitude
toward external equity will be positively associated
with his or her behavioral intention to use external
equity.
Perceived Behavioral Control
Perceived behavioral control is commonly defined as
the ease or difficulty of performing a behavior as
expected by the decision maker, reflecting both antici-
pated barriers as well as past experience (Ajzen, 2002a).
Accordingly, we define this construct in our context as
the decision maker’s perception of how much control he
or she has regarding which financial sources are utilized.
In general, a high level of perceived behavioral control
should correspond to both greater behavioral intention
and increased efforts and perseverance to realize the
intended behavior (Ajzen, 2002a). In addition to an indi-
rect effect on actual behavior via behavioral intentions,
research suggests that perceived behavioral control is
also a direct predictor of behavior (Armitage & Conner,
2001) as it can be seen as a useful indicator for actual
behavioral control (Ajzen, 2002a). Because financial
decision making requires a considerable amount of time
for planning and negotiations, perceived behavioral con-
trol at Time 0 (t = 0) is expected to be a weak predictor
of actual behavior at Time 1 (t = 1) as there will be a
greater time lag between the setting of intention and the
execution of the decision-making behavior. Accordingly,
our models explicitly accounts for the owner-manager’s
perceived behavioral control at two points in time.
Although higher levels of behavioral control are gener-
ally found to facilitate behavioral intentions and the actual
performance of the intended behavior (Armitage &
Conner, 2001), the relationship between people’s behav-
ioral control and behavioral intention and actual behavior
depends on the type of behavioral choice to be made and
the type of situation (Ajzen, 1991). With respect to financ-
ing decisions, research on family firms emphasizes the
peculiar financial logic inherent in these businesses (Gallo
et al., 2004). As noted, family firm managers tend to fol-
low a financing hierarchy by preferring internal to external
6 Family Business Review 
financial sources (Romano et al., 2001). External equity is
often utilized as a last resort to preserve greater control
over the business. Family firm owners will intermingle
private and company wealth rather than use external finan-
cial sources (Haynes et al., 1999). We thus argue that fam-
ily firm managers with a high degree of control over
financing decisions, due to the absence of decision-mak-
ing barriers, will finance company investments with inter-
nal funds to secure investment profits and business control
for the owning family. Although the use of external debt is
preferred over external equity (Romano et al., 2001), we
expect that family firm managers will avoid both the use
of external debt and external equity financing when per-
ceiving high control regarding financial decisions and will
favor internal funds. Because they are more distant from
the financing decision, perceived behavioral control inten-
tions measured at Time 0 should be negatively related to
the two behavioral intentions investigated in this study,
namely, intentions to use external debt or external equity.
Perceived behavioral control intentions measured at Time
1, which are more proximate to the financing choices,
should be more closely related to the actual financing
behavior and thus should affect the use of internal funds
positively, while directly negatively affecting the use of
external equity and external debt. Accordingly, we hypoth-
esize the following:
Hypothesis 3a: Higher owner-manager’s perceived
behavioral control (t = 0) will be negatively associ-
ated with the intention to use external debt.
Hypothesis 3b: Higher owner-manager’s perceived
behavioral control (t = 0) will be negatively associ-
ated with the intention to use of external equity.
Hypothesis 4a: Higher owner-manager’s perceived
behavioral control (t = 1) will be negatively associ-
ated with the use of external debt.
Hypothesis 4b: Higher owner-manager’s perceived
behavioral control (t = 1) will be negatively associ-
ated with the use of external equity.
Hypothesis 4c: Higher owner-manager’s perceived
behavioral control (t = 1) will be positively associ-
ated with the use of internal funds.
Behavioral Intentions and Financial Choices
Finally, we need to discuss behavioral intentions as cen-
tral elements of the theory of planned behavior (Ajzen,
1991), as they are the last step before the actual behavior
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is carried out (i.e., before a decision is made). Behavioral
intentions have been defined as the subjective probabil-
ity that an individual will perform a certain behavior
(Fishbein & Ajzen, 1975). Intentions are thought to cap-
ture all motivational factors that affect a behavior and
indicate the amount of effort and perseverance being
exerted to perform the future behavior. Research has
found intentions to be highly accurate predictors of
behavior (Ajzen, Czasch, & Flood, 2009). According to
the theory of planned behavior, the stronger the decision
maker’s behavioral intention, the more likely the behav-
ior will be performed (Ajzen, 1991). We expect this rela-
tionship to also apply to the financial decision-making
context within family firms.
As noted, family firm owners tend to employ finan-
cial sources according to a fixed hierarchy: internal
funds, followed by external debt and, as a last resort,
external equity. Family firms are found to postpone
growth-promising investment opportunities rather than
issue external equity, due to the retrenchment of family
control (Mahérault, 2000; Wu et al., 2007). Family
firm owners prefer using internal funds (e.g., retained
earnings or noncash expenses, such as depreciation),
because it does not jeopardize family control and the
investment income benefits remain with the family
(e.g., Gallo et al., 2004). Only if internal funds are
exhausted, family firms may find it desirable to finance
capital investments through debt (Hamilton & Fox,
1998), as external equity access may be limited and
would threaten control over the family business.
Accordingly, an individual’s positive behavioral inten-
tion toward a certain financial source is expected to
increase the probability of its use, while utilizing other
available financial sources would be lowered.
Accordingly, we hypothesize the following:
Hypothesis 5a: Higher owner-manager’s behavioral
intention to use external debt will be positively asso-
ciated with the use of external debt.
Hypothesis 5b: Higher owner-manager’s behavioral
intention to use external debt will be negatively asso-
ciated with the use of external equity.
Hypothesis 5c: Higher owner-manager’s behavioral
intention to use external debt will be negatively asso-
ciated with the use of internal funds.
Hypothesis 6a: Higher owner-manager’s behavioral
intention to use external equity will be positively
associated with the use of external equity.
Koropp et al. 7
Hypothesis 6b: Higher owner-manager’s behavioral
intention to use external equity will be negatively
associated with the use of debt.
Hypothesis 6c: Higher owner-manager’s behavioral
intention to use external equity will be negatively
associated with the use of internal funds.
Method
Sample
The initial data for our study were gathered as part of a
larger data collection effort in 2008 via a mailed survey,
a common method used in family firm research (e.g.,
Kellermanns & Eddleston, 2006). The sample was
drawn from the Hoppenstedt database, the largest on
German companies. We used German family firms since
Germany’s economy is traditionally dominated by
closely held family firms (e.g., Simon, 2009). Because
smaller firms, referred to as lifestyle businesses
(Schulze, Lubatkin, & Dino, 2003), usually handle
smaller investment projects and, consequently, have
relatively low need for external finance, only firms with
sales of at least €750,000 in 2007 (approximately US$1
million) were included in our sample.
To classify family firms, we used the Power subscale
of the Family Influence on Power, Experience, and
Culture Scale (F-PEC) to assess the influence of the fam-
ily over the firm (Klein, Astrachan, & Smyrnios, 2005).
Consistent with Klein et al. (2005), we analyzed family
ownership, family management, and family board posi-
tions by combining information obtained from the
Hoppenstedt database with that of the Creditreform and
Bürgel databases and by reviewing company web pages
for relevant information. The Hoppenstedt database has
information about companies in Germany and also pro-
vides information about the Tier 1 and Tier 2 decision
makers of these organizations (Hoppenstedt, 2013). Only
firms meeting the following criteria were considered
family firms: The sum of the percentage of family own-
ership, percentage of family on the management team,
and percentage of the family on the board was larger than
1, thus indicating substantial family influence (in our
sample, the average power influence = 1.9, standard
deviation = 0.3; for additional details on the F-PEC scale,
see Klein et al., 2005). Furthermore, only firms with
more than one member of the owning family (excluding
long founder firms) were included in our sample. This
yielded a total of 4,000 firms.
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To ensure sufficient sample size and power, yet while
working within our budgetary constraints, we randomly
selected 2,200 firms and sent a questionnaire with a per-
sonalized cover letter to the owner-manager along with
a self-addressed return envelope. After three reminders,
we received a total of 362 questionnaires. This initial
response rate of 16.5% is similar to those of other stud-
ies on family firms in Germany (e.g., Pieper, Klein, &
Jaskiewicz, 2008). However, data for our study were
gathered in two waves. Out of the initial respondents,
235 indicated willingness to participate in a follow-up
survey, which was designed to measure the actual behav-
ioral control and actual financial decision-making
behavior. The follow-up survey was sent out at the end
of 2009 via personalized fax or e-mail nearly 1 year after
the first data collection. We used this time lag in order to
investigate the influence of 2008’s attitudes, norms, and
intentions on the owner-manager’s financial behavior in
the fiscal year 2009. Following two reminders, the sec-
ond wave was completed in March 2010. Due to missing
values and nonresponse to the follow-up survey, our
final sample was reduced to 118 German family firms.
The owner-managers of family firm usually have great
authority with regard to financial resources (Chrisman,
Chua, & Kellermanns, 2009), yet we cannot rule out that
some companies are not dominated by single owner-
managers. However, we do not believe that this affects
generalizability.
The firms in this sample had mean sales of
€36,580,196.70 (approximately US$50 million) and a
mean firm age of 77.6 years. The respondents were
largely male (91.5%) with an average tenure of 22.77
years with the company and an average age of 52.9, rep-
resenting mostly the second or third generation of fam-
ily members, which correlates highly with firm age.
This constitutes a group of family firms that can be con-
sidered representative of the main population of family
firms in Germany but slightly larger and older than fam-
ily firms in other European countries (for a detailed
overview, see Klein, 2000).
Investigation of Potential Biases
Using data from both the first and second surveys, we
conducted multiple tests. We took two steps to reduce
the threat of potential nonresponse bias. We first divided
the sample into two groups of early and late respon-
dents, depending on the return time of the questionnaire,
and conducted an ANOVA in order to compare potential
8 Family Business Review 
differences in the study’s key variables. Because late
respondents are considered more similar to nonrespon-
dents (e.g., Armstrong & Overton, 1977), differences
between the two groups would indicate the existence of
a nonresponse bias. However, no statistically significant
differences were observed between the two groups, indi-
cating that nonresponse bias is not present in our data. In
addition, we used ANOVA to detect any differences
between the samples from first and second data collec-
tion. We did not reveal any statistically significant dif-
ferences between the two samples with regard to firm
age, size, industry, growth, or profitability.
Although we captured data at two points in time, we
still rely on self-reported data from a single informant
for our independent and dependent variables. Therefore,
common method variance may affect our empirical
results (Podsakoff & Organ, 1986). As recommended by
Podsakoff and Organ (1986), we assured respondents of
the confidentiality of their answers to reduce evaluation
apprehension. Additionally, Harman’s one-factor test
was conducted to examine the existence of common
method bias (Podsakoff & Organ, 1986). Results indi-
cate that no single method factor exists, as the first fac-
tor accounts for 29.4% of the variance, while all factors
account for 75.0%. Thus, common method bias does not
appear to be a significant problem.
Measurements
As we outline in more detail below, we utilized an SEM
approach. All latent variables in the research model
were measured by adapted versions of previously vali-
dated scales. The adaptation left the wording of the indi-
vidual scales largely unchanged. The scales were
adapted to the specific context of financing and family
firms. Content and internal validity were assessed by
expert interviews and a pilot study with eight family
firm owners (e.g., Kerlinger, 1986). Before sending out
the final questionnaire, we reworded or deleted prob-
lematic items. Reliability analysis on the final constructs
indicated that—except for the perceived behavioral con-
trol construct—all measurement scales exceeded the 0.7
threshold for Cronbach’s alpha, therefore demonstrating
a satisfactory internal validity (Nunally, 1978). A list of
all latent variable items, their standardized factor load-
ings, and the Cronbach’s alpha for each scale are pre-
sented in the appendix. Except where noted, all items
were measured using a 7-point Likert scale ranging from
strongly disagree (1) to strongly agree (7). While the
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variables were adapted to a family business and financ-
ing context by changing the referent to this context, the
adaptation tried to retain the original wording as much
as possible. Details about the measurement are discussed
next.
Independent Variables
Attitude is commonly assessed with items related to the
overall favorableness or unfavorableness of the behav-
ior in question, which is captured by dimensions such as
good-bad, harmful-beneficial, pleasant-unpleasant, or
likeable-dislikeable (Ajzen, 2001). The measures of atti-
tude toward external debt financing and external equity
financing consist of four items each and include the
evaluative adjectives good, useful, beneficial, and wise
(adapted from Kraft, Rise, Sutton, & Røysamb, 2005).
In the context of the theory of planned behavior, a
global measure for behavioral norms is generally
obtained by asking respondents to indicate the extent to
which important others would approve the performance
of a certain behavior (Ajzen, 1991). Following this
rationale, perceived family norms toward external debt
financing and external equity financing, respectively,
were each assessed by two items. Owner-managers indi-
cated the extent to which they thought their family
members (a) favored and (b) expected the use external
debt financing and external equity financing, respec-
tively, to fund company investments (adapted from
Ajzen & Madden, 1986).
Studies investigating an individual’s perceived
behavioral control use items related to either controlla-
bility or self-efficacy, or a combination of the two
(Armitage & Conner, 2001). Controllability is closely
linked to an individual’s beliefs about the presence of
factors that may impede the performance of a certain
behavior (Ajzen, 2002a). Thus, we used four items
adapted from previous research (e.g., Kraft et al., 2005)
to measure the degree of control that family firm manag-
ers believe to have over financial decision making. To
gather our perceived behavioral control construct for t =
1, we rephrased the three items used for perceived
behavioral control in t = 0.
Intention reflects an individual’s likelihood to per-
form a particular behavior in the future (Ajzen, 1991).
We measured the strength of the respondent’s intentions
toward the utilization of both external debt and external
equity financing using a three-item construct for each
behavioral intention. Following Madden, Ellen, and
Koropp et al. 9
Table 1.  Financial Sources Used by Surveyed Family Firms.
Financial Source No. of Family Firms Percentage
Family equity 23 19.5
External equity  3 2.5
Internal funds 81 68.6
Family debt 20 16.9
External long-term debt 29 24.6
External short-term debt 34 28.8
Note: N = 118. Percentages indicate the percentage of firms in the
sample using the respective financing choice, number of family firms
the frequency of occurrence. Percentages do not add up to 100%
because some family firms used multiple financial sources to finance
their investments.
Ajzen (1992), these items included “I intend to,” “I will
try to,” and “I will make an effort to.”
Dependent Variable
Our dependent variable, the financial choice, was mea-
sured in the second survey. Prior research has often
focused on one financing outcome as dependent vari-
able, typically, company debt level or leverage (e.g.,
Blanco-Mazagatos et al., 2007; Heyman et al., 2008;
López-Gracia & Sánchez-Andújar, 2007). We augment
earlier studies by utilizing a more comprehensive
approach that captures multiple financing sources.
Specifically, we asked respondents to self-report the
proportion of funding for their last investment project
derived from (a) external debt, (b) external equity, and
(c) internal funds (e.g., retained profits), resulting in
three dependent variables for our study. Table 1 sum-
marizes the frequencies of the financial choices utilized
by the family firm derived from the aforementioned
investment funding questions. Because family firms
tend to intermingle company and family finance (e.g.,
providing personal loans to the business; Haynes et al.,
1999) and thus view these sources as being internal, we
included equity and debt provided by family members in
our measure for internal funds. Since family firms may
also use financial substitutes, that is, leasing, we also ask
the respondents to indicate the proportion of “finance”
used in these other forms of finance. However, because
this kind of finance is not in the scope of this paper, and
it was negligible in scope, we used only the financial
sources mentioned above. Consequently, the financial
sources we employed do not necessarily total 100%.
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Control Variables
Research suggests that a wide range of firm characteris-
tics influences financial decision making in family
firms. Therefore, we included a set of control variables
as proxies for firm characteristics. Specifically, we
accounted for firm age and firm size, which have been
recently considered as most important predictors of fam-
ily firm financial behavior (e.g., Blanco-Mazagatos
et al., 2007). Firm age and size were assessed, respec-
tively, by the natural logarithm of number of years since
the company was founded and net sales in 2007 (e.g.,
López-Gracia & Sánchez-Andújar, 2007).
We controlled for profitability, growth, and industry,
as these variables are frequently used in capital structure
research (Campello, 2003; Heyman et al., 2008; Romano
et al., 2001) in a post hoc analysis. The controls were not
included in the main analysis due to missing data. We
will report the results in more detail in the next section.
Profitability was measured by the firm’s return on asset
in 2007, growth was assessed by the 3-year average
sales growth (2004-2007), and 16 different industries
were classified according to common standards. Next,
we present our results.
Results
Our hypothesized model of financial decision-making
processes in family firms appears in Figure 1. We ana-
lyzed data using AMOS 20 and SPSS 20 and used SEM
with maximum likelihood estimation to test the model.
Data analysis follows a two-step approach using SEM
(J. Anderson & Gerbing, 1988). First, we assessed model
accuracy using a measurement model. We then analyzed
the path relationships. One advantage of SEM is that it
tests all relationships in one model simultaneously and
shows if relationships are mediated. As seen in Figure 1,
the relationship between perceived family norms and
attitudes and the use of financing is mediated by behav-
ioral intention. Descriptive statistics and correlations for
the variables appear in Table 2.
Researchers using structural equation techniques rely
on a variety of fit indices and other model characteristics
for evaluating model goodness. Previous research has
shown that the comparative fit index (CFI), the Tucker-
Lewis index (TLI), and the root mean square of approxi-
mation (RMSEA) demonstrate restricted random
variation under various conditions of model misspecifica-
tion, sample size, and estimation methods (e.g., Bentler,
 10
Table 2.  Descriptive Statistics and Correlation Matrix.
Mean SD (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) (18) (19) (20) (21) (22) (23) (24) (25) (26) (27) (28) (29)

(1) Use of External 23.39 33.55  

Debt
(2) Use of Internal 62.78 40.05 -.60**  
Funds
(3) Use of External .43 4.60 .00 -.09  
Equity
(4) Intention to Use 4.03 1.95 .45** -.34** .14  
External Debt
(5) Intention to Use 2.27 1.48 .23* -.28** .30** .23*  
External Equity
(6) Attitude Toward 4.32 1.58 .34** -.34** .12 .69** .18*  
External Debt
(7) Attitude Toward 3.32 1.51 .23* -.35** .11 .24** .67** .37**  
External Equity
(8) Perceived Family 3.63 1.86 .40** -.31** .17 .79** .18* .60** .16  
Norms Toward
External Debt
(9) Perceived Family 2.42 1.47 .15 -.14 .23* .12 .71** .06 .51** .16  
Norms Toward
External Equity
(10) Perceived 5.53 .98 -.06 .11 .07 -.08 -.07 -.05 .06 -.01 .03  
Behavioral
Control
(11) Actual Behavioral 4.64 1.70 .04 .15 -.04 .07 -.27** .09 -.12 .04 -.16 .18*  
Control
(12) Firm Size 16.28 1.32 -.08 .16 .04 .18 -.15 .29** -.10 .18 -.21* -.01 .13  
(13) Firm Age 4.07 .82 -.09 .08 -.07 .10 -.28** .15 -.13 .12 -.24* .02 .04 .23*  
(14) Firm Growth† 10.53 14.16 .07 .05 .28** .05 .09 -.16 .01 .04 .16 .20* .08 .05 -.25*  
(15) Firm Profitability† 17.48 45.56 -.11 -.01 .14 -.11 .16 -.13 -.05 -.17 .31** .07 .00 -.09 -.29** .07  
(16) Automobile .08 .27 .06 -.07 .32** .07 .09 -.02 .03 .09 .07 .01 -.04 .02 -.06 .32** .01  
(17) Construction .14 .35 .07 -.01 -.04 .14 .03 .08 .11 .15 -.02 .01 .26** .01 .01 -.11 -.08 -.12  
(18) Chemicals .06 .24 .04 .02 -.02 -.08 -.01 -.11 .05 -.15 .05 .15 -.05 -.12 .19* .04 -.04 -.07 -.10  
(19) Retail and whole .14 .34 .03 -.19* -.04 -.09 .17 .10 .10 -.05 .14 -.24** -.05 -.01 .09 -.30** .13 -.11 -.16 -.10  
sales
(20) Financial Services .02 .13 -.09 .12 -.01 -.21* -.11 -.11 -.16 -.19* -.13 .06 -.25** .04 -.07 .14 -.03 -.04 -.05 -.03 -.05  
(21) Industrial goods .18 .38 -.22* .18 -.04 .11 -.05 .01 -.08 .11 -.07 -.13 -.03 .31** .05 .15 -.05 -.13 -.19* -.12 -.18* -.06  
(22) Consumer goods .05 .22 .01 .08 -.02 -.12 -.10 -.04 -.08 -.05 -.09 .03 .13 .11 .10 -.06 -.05 -.07 -.09 -.06 -.09 -.03 -.11  

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(23) Media .06 .24 .05 -.04 -.02 .00 -.11 -.02 -.15 -.06 -.17 -.14 .05 -.11 -.01 -.08 -.03 -.07 -.10 -.06 -.10 -.03 -.12 -.06  
(24) Food .06 .24 .04 -.04 -.02 .05 -.04 .03 -.04 .03 .19* -.04 .02 -.04 .04 -.04 .23* -.07 -.10 -.06 -.10 -.03 -.12 -.06 -.06  
(25) Health Care .02 .13 .05 .01 -.01 -.10 -.02 -.10 -.02 -.15 -.06 .08 -.08 -.11 -.20* .14 -.03 -.04 -.05 -.03 -.05 -.02 -.06 -.03 -.03 -.03  
(26) Energy/Raw .03 .18 .01 .06 -.02 .05 -.07 .04 .01 .06 -.12 .07 -.02 -.06 .01 -.01 -.05 -.05 -.08 -.05 -.07 -.02 -.09 -.04 -.05 -.05 -.02  
Materials
(27) Software / IT .03 .16 -.08 -.01 -.02 -.07 .07 -.08 .04 -.04 -.01 .02 -.24** .05 -.01 -.11 -.03 -.05 -.07 -.04 -.06 -.02 -.08 -.04 -.04 -.04 -.02 -.03  
(28) Telecommunication .01 .09 -.01 .04 -.01 -.10 -.02 -.15 -.08 -.11 -.03 .02 -.04 -.06 -.07 -.08 -.01 -.03 -.04 -.02 -.04 -.01 -.04 -.02 -.02 -.02 -.01 -.02 -.01  
(29) Logistics .04 .20 .05 -.09 -.02 .17 .02 .25** .03 .13 .00 .13 -.19* -.14 .02 .01 -.01 -.06 -.09 -.05 -.08 -.03 -.10 -.05 -.05 -.05 -.03 -.04 -.03 -.02  
(30) Services .08 .28 .02 .01 -.03 -.13 .03 -.12 .09 -.10 .09 .24** .15 -.16 -.28** .11 -.02 -.09 -.12 -.08 -.12 -.04 -.14 -.07 -.08 -.08 -.04 -.06 -.05 -.03 -.06

Note: N = 118. Industry controls were used in post hoc analyses.

a
ln transformed. bVariables used in post hoc analyses with n = 100.
*p < .05. **p < .01 (two-tailed).
Koropp et al. 11

Perceived
Family Norms
.621***
Toward External
Debt
Useof External
.321*** Behavioral .480*** Debt
Attitude Toward Intention to Use R² = 25.7%
External Debt External Debt -.318***
R² = 72.6%
.177† Use of Internal
Perceived Funds
R² = 22.39% -.166*
Behavioral -.153†
-.113†
Control (t=0)

.412*** Behavioral .298*** Use of External

Attitude Toward Intention to Use
.193*
Equity
External Equity External Equity R² = 8.9%
R² = 67.9%
.514***
Perceived
Family Norms
Toward External
Equity Control:
Insignificnat Main Effect: Insignificnat Control:
:
Perceived Behavioral Control (t=1) Age Size

Figure 2.  Final model of financial decision making in the family firm.
Note: For a summary for the supported hypotheses, see Table 3. Perceived behavioral control was dropped from the model due to lack of
significance; nonsignificant paths are not shown.
†
p < .10. *p < .05. **p < .01. ***p < .001.

1990; Fan, Thompson, & Wang, 1999; Nevitt & Hancock,
2000; Tucker & Lewis, 1973). In spite of the known limi-
tations, we also applied the incremental fit index (IFI) and
the χ2/df ratio to assess the goodness of fit of our measure-
ment model (see also Hair, Black, Babin, & Anderson,
2010). For acceptability, fit indices should exceed the
commonly proposed .90 threshold, except for RMSEA,
where the cutoff is generally considered .08, and χ2/df
ratio, where the recommended maximum is 3 (Hu &
Bentler, 1995, 1999; Kline, 1998).
First, we estimated the measurement model, which
yielded an initial χ2 = 515.56 and indicated a good fit
with CFI = .952, TLI = .939, and IFI = .954. The RMSEA
is .06 with a 90% confidence interval [.048, .072]. The
good fit of our measurement model suggests that our
respondents were able to distinguish between the con-
structs. Standardized factor loadings from measurement
model and the constructs’ items are reported in the
appendix.
Second, we tested the hypothesized model depicted
in Figure 1. The model shows a good fit to the data: χ2 =
624.557, all goodness-of fit indices exceed the recom-
mended 0.9 threshold (CFI = .932, TLI = .921, IFI =
.933), RMSEA = .069 with a 90% confidence interval =
[.058, .079], and χ2/df ratio = 1.550 (p < .001). However,
our analysis of the initial model revealed a number of
nonsignificant paths as well as two significant paths that
the conceptual model did not predict. Therefore, we re-
specified the model and, to facilitate reporting, retained
only the significant control variable (firm size) and
omitted firm age.
The resulting final model indicates a good fit (e.g.,
Hair et al., 2010; Hu & Bentler, 1999): χ2 = 500.215,
CFI = .938, TLI = .928, IFI = .938, RMSEA = .074 with
a 90% confidence interval = [.062, .085], and χ2/df ratio
= 1.635 (p < .001). We use the re-specified final model
to report the findings of our analysis. Results obtained
from SEM appear in Figure 2 and Table 3. Figure 2
shows those standardized path coefficients considered
significant for the relationships in the final model and
presents the variance explained for each dependent vari-
able. Table 3 provides an overview of our supported and

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12 Family Business Review 

Table 3.  Summary of Hypotheses.

Hypothesis Predicted influence Standardized path coefficient Significance

Hypothesis 1  
  (a) Perceived family norms toward external debt → + .621 ***
Behavioral intention to use external debt
  (b) Perceived family norms toward external equity → + .514 ***
Behavioral intention to use external equity
Hypothesis 2  
  (a) Attitude toward external debt → Behavioral + .321 ***
intention to use external debt
  (b) Attitude toward external equity → Behavioral + .412 ***
intention to use external equity
Hypothesis 3  
  (a) Perceived behavioral control (t = 0) → Behavioral – Not supporteda
intention to use external debt
†
  (b) Perceived behavioral control (t = 0) → Behavioral – –.113
intention to use external equity
Hypothesis 4  
  (a) Perceived behavioral control (t = 1) → Use of – Not supporteda
external debt
  (b) Perceived behavioral control (t = 1) → Use of – Not supporteda
external equity
  (c) Perceived behavioral control (t = 1) → Use of + Not supporteda
internal funds
Hypothesis 5  
  (a) Behavioral intention to use external debt → Use + .480 ***
of external debt
  (b) Behavioral intention to use external debt → Use – Not supporteda
of external equity
  (c) Behavioral intention to use external debt → Use – –.318 ***
of internal funds
Hypothesis 6  
  (a) Behavioral intention to use external equity → Use + .298 ***
of external equity
  (b) Behavioral intention to use external equity → Use – Not supporteda
of external debt
†
  (c) Behavioral intention to use external equity → Use – –.153
of internal funds
†
Perceived behavioral control (t = 0) → Use of internal .177
funds
a
Nonsignificant paths were dropped in the final model.
†
p < .10. *p < .05. **p < .01. ***p < .001.

unsupported hypotheses and lists significant, but not
hypothesized, paths.
The first set of hypotheses examines the influence
of perceived family norms on the owner-manager’s
attitudes and on his or her behavioral intentions. The
perceived family norms were hypothesized to posi-
tively influence owner-managers attitudes. Hypotheses
1a and 1b, which predict that the perceived family
norms influence behavioral intentions, are supported
by our data. Family norms toward external debt (β =
.621; p < .001) and external equity (β = .514; p < .001)
have a significant influence on the owner-manager’s
intention to use external debt and external equity,
respectively.

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Koropp et al. 13
The hypotheses that predict the existence of relation-
ships between the owner-manager’s financial attitude and
his or her behavioral intention are also supported by the
results of the SEM analysis. An owner-manager’s attitude
toward external debt (β = .321; p < .001) is significantly
positively related to his or her behavioral intention to use
external debt financing, thus supporting Hypothesis 2a.
The same applies for external equity financing (β = .412;
p < .001), which supports Hypothesis 2b.
The third set of hypotheses (Hypothesis 3 and
Hypothesis 4) examine the relationship between an
owner-manager’s perceived behavioral control, his or
her intention, and the subsequent financing behavior,
respectively. Results show little support for our hypoth-
eses. Although a higher perceived behavioral control at t
= 0 (β = –.113; p < .10) is negatively related to the
behavioral intention to use external equity, which mar-
ginally supports Hypothesis 4b, all other hypotheses are
nonsignificant. However, we also found a significant
relationship between perceived behavioral control (t =
0) and the decision to use of internal funds in family
firms (β = .177; p < .10), which is in line with the predic-
tions of the theory of planned behavior (e.g., Ajzen,
2002a).
Finally, Hypotheses 5 and 6 investigate the relation-
ships between the owner-manager’s financing intention
and the subsequent financing behavior, which represents
the intersection of the cognitive decision-making pro-
cess and the visible execution of behavior. As expected,
a higher intention to use external debt (β = .480; p <
.001) increases the use of external debt financing, and a
higher intention to use external equity (β = .298; p <
.001) increases the use of external equity, thus support-
ing Hypotheses 5a and 6a. Additionally, higher inten-
tions to use external debt leads to a lower use of internal
funds (β = –.318; p < .01), while higher intentions to use
external equity lead to a lower use of internal funds (β =
–.153; p < .10), as predicted by Hypotheses 5c and 6c.
However, the predicted effects between an the owner-
manager’s intention to use external debt and the use of
external equity and those between an individual’s inten-
tion to use external equity and the use of external debt
are nonsignificant, indicating a lack of support for
Hypotheses 5b and 6b. We discuss the implications of
our findings in the last section.
Post Hoc Analyses
Post hoc analyses were conducted to control for possible
effects of other firm characteristics, such as profitability,
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growth, and industry classification. Family firms are
typically not publically traded and do not disclose per-
formance figures (Bjuggren & Sund, 2002). Thus,
because of the extent of missing values and our desire to
preserve degrees of freedom in our main model, a sub-
sample analysis was carried out with additional controls.
First, we included profitability and growth as additional
control variables in our final model and used SEM to
test the extended model. Due to missing data, this was
done with a reduced sample of 100 family firms. The
resulting extended model has a good fit: χ2 = 606.553,
CFI = .921, TLI = .909, IFI = .922, RMSEA of .078 with
a 90% confidence interval = [.067, .088], and χ2/df ratio
= 1.709 (p < .001). The two additional control variables
did not change the results significantly.
Second, as recommended by Pedhazur (1982), we
reestimated the model via multiple ordinary least squares
(OLS) regression to address concerns of estimate stabil-
ity and to investigate potential multicollinearity. These
models also included all control variables and were con-
sistent with our SEM results. The highest observed vari-
ance inflation factor (VIF) is 3.403, and the highest
condition index (CI) is 4.044, values that are well below
the thresholds indicating the presence of multicollinear-
ity problems (e.g., Hair et al., 2010). In a second step,
we further tested the effects of industry via an OLS
regression. As we considered numerous industries (16
categories), we utilized OLS regressions for this indus-
try post hoc test (see also Pedhazur, 1982) on our full
sample of 118 family firms. Again, this control variable
did not significantly affect our overall results.
Specifically, industry did not affect any of our depen-
dent variables. However, behavioral intention to use
external equity is no longer significantly related to the
use of internal funds, thus not supporting Hypotheses
6c. Furthermore, our control size has no significant
effect on the use of debt and internal funds. Last, as
often suspected, we investigated if perceived behavioral
control and intentions interacted with each other to
affect our results (Armitage & Conner, 2001). However,
this was not the case for either the interaction of per-
ceived behavioral control at t = 0 with intentions or with
perceived behavior control at t = 1 in our study. Our
results thus resemble nonfindings in previous research
(for an overview, see Ajzen, 1991).
Discussion
Financial decision making represents a central challenge
to family firms worldwide. To better understand this
14 Family Business Review 
phenomenon, we investigated the financial decision-
making process in family firms from an owner-manager
perspective. We argued that financial decisions are at
least under partial volitional control of the family firm
decision makers and thus that the theory of planned
behavior can be applied to financial decision making in
family firms. Indeed, our results are consistent with the
theory of planned behavior and indicate that family
decision makers had at least partial control, as lower lev-
els of volitional control would depress the predictive
validity and the significance of the reported paths. Thus,
finding significant relationships and observing satisfac-
tory levels of explained variance shows that the theory
can provide useful insights into financial decision mak-
ing in family firms. Specifically, we highlight the unique
effect of family norms (as perceived by the owner-man-
ager) on capital structure choices in family firms. Next,
we elaborate on our findings in more detail, which are
summarized in Figure 2 and Table 3.
First, we find that family norms pertaining to the use
of external debt and equity have a profound effect on
intentions. Specifically, more favorable norms toward
external debt lead to more positive behavioral intentions
to use debt financing. Similarly, family norms toward
the use of external equity are strongly related to behav-
ioral intentions to use external equity financing. The
aforementioned relationships exhibit the highest regres-
sion weights in our paper, yet the theory of planned
behavior often sees norms as the weakest predictor in
the model (e.g., Ajzen, 1991). This emphasizes the
unique context of family firms. Indeed, the commin-
gling of roles between the family and the firm (e.g.,
Sundaramurthy & Kreiner, 2008) confronts the owner-
manager constantly with norms held in the family. Norm
violations would threaten the functioning of beneficial
processes between family members (Eddleston,
Kellermanns, & Sarathy, 2008; Sharma & Manikutty,
2005); accordingly, an adherence to family norms is
important for family firm functioning. Furthermore, and
consistent with the theory of planned behavior, attitudes
toward external debt and external equity are positively
associated with intentions to use that type of debt and
equity, respectively. As hypothesized, intentions to use
external debt financing are strongly and positively
related to the use of external debt and negatively related
to the use of internal funds. Positive intentions to use
external equity are marginally negatively related to the
use of internal funds but strongly positively related to
the use of external equity.
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The intention to use external debt financing is not
negatively related to the use of external equity, and the
intention to use external equity is not significantly
related to the use of external debt. These findings stress
that family firm managers view external financing
choices as independent of each other and treat them as
independent factors in the decision-making process.
Thus, our study highlights the importance of including a
range of financing options when examining financial
decision making in family firms rather than single mea-
sures of financial behavior.
In addition, our study shows the limited influence of
perceived behavioral control on financial decision mak-
ing. We found only marginally significant positive rela-
tionships between perceived behavioral control and the
use of internal funds and no significant relationship
between this variable and the use of external debt or the
use of external equity. These findings need to be seen in
light of the strong family norms dictating financing
choices. Indeed, when normative influences are power-
ful, perceived behavioral control often appears to be less
predictive (Armitage & Conner, 2001).
Overall, our findings showed that behavioral inten-
tions fully mediated the relationship between family
norms and financing behavior. Our findings also show
that behavioral intentions to use external equity partially
mediate the relationship between perceived behavioral
control and the use of internal funds. Furthermore, our
model’s re-specification does not reveal a significant
negative effect either between attitudes toward external
debt and intention to use external equity or between atti-
tudes toward external equity and use of external debt
financing, respectively. This is consistent with financial
pecking order theory (e.g., King & Santor, 2008; López-
Gracia & Sánchez-Andújar, 2007) and recent research
findings on family firm financing (e.g., Blanco-
Mazagatos et al., 2007). If the financial decision maker
uses external financing due to extended capital needs,
external equity capital will be acquired after external
debt sources are exploited. External equity financing is
seen as a last resort after sources of debt have been
exhausted.
Implications
Our results emphasize the importance of family norms
in family firms by empirically demonstrating that family
norms (perceived by the owner-manager) influence
financial decision-making processes. This is important
Koropp et al. 15
considering that little is known about why financial
choices vary among family firms, that is, how and why
family firms utilize certain financial sources (López-
Gracia & Sánchez-Andújar, 2007). Our research, which
adds to recent theoretical and empirical work on the
uniqueness of family firms (e.g., Zellweger, Eddleston,
& Kellermanns, 2010), is particularly noteworthy, since
research on decision making in nonfamily firms does
not always show links between perceived norms and
behavioral actions (Linan & Chen, 2009). Our findings
are consistent with recent entrepreneurship literature
that stresses the importance of family influence (Chang
et al., 2009). Furthermore, our results have implications
for capital structure research, since we find empirical
support for a strategic management approach to capital
structure choice (Barton & Gordon, 1987) as future
financial decision making (financing intention) is sub-
ject to distinctive personal characteristics (attitudes, per-
ceived norms, perceived control) of the decision maker.
Our findings may also have implications for family
firm performance. As financial decision making is strongly
influenced by family norms and attitudes (see also
Pazzaglia, Mengoli, & Sapienza, 2013), a general negative
attitude (more so for family norms) toward external
finance will dissuade family firms from using these
sources. Together with the fact that family firms prefer to
retain control of their business (Gómez-Mejía, Haynes,
Núñez-Nickel, Jacobson, & Moyano-Fuentes, 2007), fam-
ily firms will likely deter growth opportunities rather than
use external financing if internal funds are exhausted.
While this may contribute to noneconomic performance
(e.g., Astrachan & Jaskiewicz, 2008), it is likely to con-
strain the future financial performance of the family firm.
Limitations and Future Research
There are a few limitations that pose additional opportu-
nities for future research. First, we relied on self-reported
data obtained from a single respondent. Because the
family firms in our sample were not publicly traded,
objective measures of financing choices could not be
obtained. Furthermore, as all information was obtained
from a single respondent via surveys at two points in
time, our study is exposed to the risk of common method
bias. However, a post hoc test (Podsakoff & Organ,
1986) did not indicate any significant bias concerns.
Second, we asked the respondents about their last
investment decision. While this approach is consistent
with the literature, we do not know if these decisions
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were made within the time frame of the survey. However,
even if they were not, they should reflect the general
preferred investment behavior by the owner-managers.
Indeed, if the investment decisions were preceding our
study, the observed relationships would be attenuated. In
the light of our strong findings, however, this does not
appear to be the case. In addition, while we control for
perceived behavioral control at both Time 0 and Time 1,
we do not have a measure of the actual behavioral con-
trol, that is, the actual availability of the different financ-
ing sources (see Ajzen, 2006).
Third, we employed a demand-side approach to
financial decision making by investigating the behavior
of the family firm. However, financial decision making
might be constricted due to supply-side behavior (e.g.,
credit rationing by banks). We tried to mitigate this con-
cern by controlling for perceived behavioral control per-
taining to financing at two points in time to account for
supply-side constraints. Family firms represent impor-
tant opportunities for private equity investors (Dawson,
2011), and the size of the firms in our sample makes the
firms potentially interesting for private equity firms.
Yet, we observe a very low use of external equity financ-
ing (see Table 1), which may be largely due to family
firms’ traditionally negative approach to this financial
source, which is driven by their fear of losing control
and aversion to monitoring by outside shareholders (Wu
et al., 2007). Indeed, this financing tool is restrictively
used by family firms in general (Croci et al., 2011). The
resulting range restriction, potential lack of availability,
and the fact that there is only one significant predictor
may explain the lower levels of variance in this depen-
dent variable. To address this concern, future research
should incorporate variables reflecting both demand-
and supply-side behavior. This would add to our under-
standing of financing behavior. In addition, future
research should provide an even finer-grained distinc-
tion between the financing choices and include more
additional options, like mezzanine financing.
Our research highlights the influence of family norms
as one distinctive element of financial decision making
in family firms compared to nonfamily firms where the
overlap of the family and the firm is not that prominent.
However, future research may propose and investigate
other elements distinguishing family firm owner-manag-
er’s financing decisions from those of entrepreneurs and
nonfamily firms. For example, generational influences
(see also the recent study by Molly et al., 2012), which
may affect the desire to maintain socioemotional wealth
16 Family Business Review 
and thus the firm’s risk-taking propensity (Gómez-Mejía
et al., 2007), may be investigated. In addition, more
nuanced norms could be investigated. Differences
between individual subjective norms, family norms, and
industry norms, among others, could be distinguished.
Although the theory of planned behavior is com-
monly used for framing single-choice decisions (e.g.,
Sharma et al., 2003), our model explicitly accounts for
multiple-choice behavior. However, future studies
could improve on our design by including other factors
that influence the financial decision-making process in
family firms (e.g., family control affecting financial
logic; Blanco-Mazagatos et al., 2007; Romano et al.,
2001). In addition, while our model was already lagged,
the attitudes and intentions were measured at the same
time. Separating these variables chronologically would
provide additional opportunities to explore potential
contingency effects between attitudes at Time 0 and
intentions at Time 1 (e.g., knowledge, environmental
influences etc.). Last, obtaining multiple respondents
would not only strengthen the design but could also
provide insight into the composition and uniformity of
the family norms. While multiple-respondent designs
normally show higher interrater reliability in family
Appendix
Construct Item
Attitude toward I consider the use of external debt a good idea.
external debt From my point of view, external debt is a
useful way of financing.
For me, financing investments by issuing
external debt is beneficial.
In my opinion, the use of external debt is wise.
Attitude toward I consider the use of external equity a good
external equity idea.
From my point of view, external equity is a
useful way of financing.
For me, financing investments by issuing
external equity is beneficial.
In my opinion, the use of external equity is
wise.
Perceived family norms The members of my family would expect
toward external debt me to use debt to fund the next company
investment project.
The members of my family would favor the use
of debt to fund the next company investment
project.
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firms (Eddleston et al., 2008), this has yet to be deter-
mined on financial issues, which rely predominantly on
single-respondent designs or databases (e.g., Amore
et al., 2011; Croci et al., 2011; Molly et al., 2012).
Conclusion
In conclusion, we draw from the theory of planned
behavior to more fully examine how financing decisions
are made in family firms. To explore our hypothesized
model, we applied lagged data obtained from two survey
waves conducted in 2008 and 2009. Our study shows
that family norms are important factors in financial deci-
sion-making processes in family firms and that signifi-
cant variance in capital structure can be explained by
using the theory of planned behavior. However, it should
serve only as a first step in applying a more behavioral
approach to the study of financing decisions in family
firms. Given that sufficient financial resources are key
for firm development, and family firms are central to
economies throughout the world (Morck & Yeung,
2004), research needs to better examine how individual
decision-maker and family processes facilitate or inhibit
the use of certain financial sources in family firms.
Standardized factor loading Cronbach’s alpha
.87  
.92  
.95  
.96 .96
.84  
.86  
.94  
.94 .94
.99  
.95 .97
(continued)
Koropp et al. 17

Appendix (continued)

Construct Item Standardized factor loading Cronbach’s alpha

Perceived family norms The members of my family would expect me to .93  
toward external use external equity to fund the next company
equity investment project.
The members of my family would favor the use .95 .94
of external equity to fund the next company
investment project.
Perceived behavioral I feel confident that I can choose the external .80  
control at t = 0 financial source I think is best for my
company.
I have complete control over the decision .77  
which financial source is used within my
company.
It is mostly up to me which external financial .42 .67
source is used within my company.
Perceived behavioral Despite the financial crisis, I feel confident that .80  
control at t = 1 I can choose the external financial source I
think is suitable for my company.
Due to the financial crisis, some financial .69  
sources are not available to me. (R)
In spite of the financial crisis, it is my decision .74 .79
which external financial source is used.
Intention to use I intend to use external debt for the next .96  
external debt company investment project.
I will make an effort to use external debt for .98  
the next company investment project.
I will try to use external debt for the next .95 .97
company investment project.
Intention to use I intend to use external equity for the next .93  
external equity company investment project.
I will make an effort to use external equity for .97  
the next company investment project.
I will try to use external equity for the next .99 .97
company investment project.

Note: R = reversed scored.

Declaration of Conflicting Interests References

The author(s) declared no potential conflicts of interest with
respect to the research, authorship, and/or publication of this
article.
Funding
The author(s) received no financial support for the research,
authorship, and/or publication of this article.
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Author Biographies
Christian Koropp was a postdoctoral researcher at the
Institute of Technology Management at the University of St.
Gallen and is now working as consultant for small and
medium-sized firms.
Franz W. Kellermanns is the Addison H. and Gertrude C.
Reese Endowed Chair and a professor of management in the
Belk College of Business at the University of North Carolina
at Charlotte. He holds a joint appointment with the INTES
Center at the WHU–Otto Beisheim School of Management
(Germany).
Dietmar Grichnik is chair of entrepreneurship, professor and
director of the Institute of Technology Management at the
University of St. Gallen (HSG), Switzerland. He also runs the
HSG Center for Entrepreneurship and lectures at ETH Zurich,
Switzerland.
Laura Stanley is an assistant professor of management in the
College of Business at East Carolina University. She received
her PhD in management from the University of Georgia. Her
primary research interests include organizational commitment
and entrepreneurship.