Family control and cost of debt: Evidence from China

This paper studies how family ownership influences the cost of debt. Using a sample of Chinese listed firms, we find that family control leads to a higher bond yield-spread. This evidence contradicts the findings in developed markets. We document that the risk of expropriation and financial reporting quality are plausible mechanisms. Besides, Protection of debtholders' rights can mitigate the concern of family expropriation and information asymmetry, and reduce the cost of debt. We also show consistent evidence that family firms generally take less debt and have lower debt maturity due to the high cost. Overall, our results shed light on how family control affects financing costs in the capital market with less protection for creditor rights.