This paper analyzes the firm characteristics which are determinants of capital structure according to different explanatory theories, and how institutional characteristics affect capital structure. We have developed a target adjustment model, which has then been confirmed by our empirical evidence. It highlights the fact that the transaction costs borne by Spanish firms are inferior to those borne by US firms. Our results are consistent with tax and financial distress theories and with the interdependence between investment and financing decisions; they also provide additional evidence on the pecking order and free cash flow theories. Finally, the evidence obtained confirms the impact of some institutional characteristics on capital structure.

We study the relationship between leverage and the willingness of listed family firms to dilute control, proxied by the ownership of the main shareholder. We find that the main owner's stake positively impacts on leverage and that this impact is stronger when the business is a young family firm. Furthermore, the life cycle matters when analyzing this relationship. These results allow us to argue that owners with a greater stake prefer to raise finance via debt rather than dilute their position via equity, and that young family firms face a trade-off between their control risk aversion and the need for external financing.

This paper considers the ownership structure of family firms to determine whether family control alleviates or exacerbates investment–cash flow sensitivity in the Euro zone. We find that family-controlled corporations have lower investment–cash flow sensitivities. Further, our results show that this reduced sensitivity is mainly attributable to family firms with no deviations between cash flow and voting rights and to family firms in which family members hold managerial positions. We also find that second largest shareholders affect family firms' sensitivity and are associated with either monitoring (non-family second blockholders) or collusion (family second blockholders). Overall, family control seems to mitigate investment inefficiencies that derive from capital market imperfections.