Abstract
Using an agency-theoretic lens and insights drawn from the behavioral economics and family business literatures, this study developed hypotheses concerning the effect of dispersion of ownership on the use of debt by private family-owned and family-managed firms. A field study of 1,464 family firms was conducted. Results suggest that, during periods of market growth, the relationship between the use of debt and the dispersion of ownership among directors at family firms can be graphed as a U-shaped curve. The nonlinear relationship suggests that family firms are most vulnerable to conflict, and least willing to bear added risk, when ownership is split in relatively equal proportions. Interestingly, the fact that this distribution appeared in only 22% of the sample firms suggests that most family firm owners may take such risk into consideration when making their estate plans