We study the drivers of financial sophistication in small family firms. Sophistication is defined as the use of non-basic financial products such as options, swaps, debt restructuring, and mergers and acquisitions (M&A) advisory services. Our analysis is based on a unique dataset with detailed information on 187 Italian family firms. We find that the main drivers of financial sophistication are: (1) the generation that currently owns the firm; (2) the presence of a non-family CFO; and (3) the existence of a non-family shareholder. We analyze the impact of these factors on the following four classes of non-basic financial products: corporate finance, cash management, corporate lending and risk management. Our results can be used to determine the characteristics of financially sophisticated family firms and whether their corporate governance and ownership structure increase the use of non-basic financial products.

Theories suggest that asset encumbrance, the ring-fencing of certain assets for protected debtholders, can affect banks’ risk-taking and lead to funding instability. We test these hypotheses using a unique, hand-collected dataset on outstanding covered bonds issued by a sample of listed European banks. Our results suggest that the effect of asset encumbrance on risk depends on the proportion of debtholders exerting market discipline and on the bank's liquidity buffers. We deal with concerns regarding omitted variables and reverse causality using several fixed effects estimations and an instrumental variables approach. Our findings can alert policymakers about potential side effects of policy interventions that can induce an increase of asset encumbrance in banks.