9. Financial Management in the Family Business (c) Thomas Zellweger, 2017
Are family firms more risk averse than nonfamily firms? Discuss the assumptions of the capital asset pricing model (CAPM) and the degree to which they apply to family firms. What is family equity? How is it distinct from private and public equity? What does the empirical evidence say about the financial performance of family and non-family firms? Are family firms more risk averse than nonfamily firms? (c) Thomas Zellweger, 2017
What are the advantages and disadvantages of debt financing? Why do family firms typically have a lower cost of debt financing? Explain the differences between the capital market line (CML) and the family market line (FML). What are the risks associated with applying a lower than risk equivalent cost of equity capital? (c) Thomas Zellweger, 2017
What could the arguments for family firms to increase leveraging be? Under which conditions does it pay for the owners to increase the firm’s leverage? How do the leverage levels of family firms compare to those of nonfamily firms? What could the arguments for family firms to increase leveraging be? Explain the links among credit ratings, interest coverage and the amount of debt a company should raise. Assume that the firm is required to achieve an A rating, has an EBITDA of $20 million and the risk-free rate is 4%. (c) Thomas Zellweger, 2017
Explain the link between a firm’s dividend policy and its growth. Consider a family firm with which you are familiar. What are the informative financial ratios that can be used to measure its operational efficiency, profitability, liquidity, security and value creation? Under which conditions can a firm destroy value while still generating a profit? Explain the link between a firm’s dividend policy and its growth. How much dividend should a family firm pay out? (c) Thomas Zellweger, 2017
Why is portfolio management important for family firms? How should a family resolve the dilemma related to the leveraging of the firm? On the one hand, increased leverage normally increased return on equity (ROE). On the other hand, higher leverage increases the firm’s default risk. Why is portfolio management important for family firms? What are the six principles of sustainable financial management in family firms? (c) Thomas Zellweger, 2017
What are the pros and cons of stock ownership plans in family firms? On employment practices in family firms: discuss the competing views about whether family firms are great places to work. What are the pros and cons of stock ownership plans in family firms? Describe the functioning of phantom stock for a firm. What are the pros and cons of phantom stock appreciation rights (SARs)? What is psychological ownership? What are the three levers for increasing it? (c) Thomas Zellweger, 2017
What are the attributes of responsible owners in family firms? How is the role of a CFO in a family firm distinct from the role of a CFO in a nonfamily firm? What are the attributes of responsible owners in family firms? What does mindfulness mean in the context of family firm ownership? (c) Thomas Zellweger, 2017