Understanding Family Firm Intentions to Use Private Equity: A Theory of Planned Behaviour Perspective

Abstract

Although past research suggests that family firms are less likely to use private equity (PE) financing, further research is required to identify the underlying reasons for such behaviour. Using the theory of planned behaviour and based on the analysis of data collected from 254 family firms, we identify the factors that explain a family firm’s intentions to use PE. Family owners are more likely to plan to use PE when they have a favourable attitude toward PE, their intended succession strategy involves relinquishing control by selling the business sometime in the future, and they have a good understanding of PE.

Full text

Chris Graves*, Pi-Shen Seet and Anneleen Michiels
Understanding Family Firm Intentions to Use
Private Equity: A Theory of Planned
Behaviour Perspective
https://doi.org/10.1515/erj-2022-0019
Received January 19, 2022; accepted October 8, 2022
Abstract: Although past research suggests that family firms are less likely to use
private equity (PE) financing, further research is required to identify the underlying
reasons for such behaviour. Using the theory of planned behaviour and based on
the analysis of data collected from 254 family firms, we identify the factors that
explain a family firm’s intentions to use PE. Family owners are more likely to plan
to use PE when they have a favourable attitude toward PE, their intended suc-
cession strategy involves relinquishing control by selling the business sometime in
the future, and they have a good understanding of PE.
Keywords: private equity, family business, succession, attitude, knowledge
1 Introduction
Access to financial capital is critical for the survival (Lussier and Halabi 2010),
growth and performance of firms (Matthews et al. 1994). Importantly, restrictions
of access to external sources of finance, such as owner (self) imposed restrictions
as observed in family firms, can be detrimental to their financial survival and
performance (Koropp et al. 2013). This study focuses on one specific source of
external financing, which is gaining growing recognition of the role it can play for
family firms: Private Equity (PE).
In its broadest terms, PE is defined as the capital raised through the issuing of
shares that are not publicly traded on a securities exchange (BVCA 2012). PE dates
back to the 18th century when entrepreneurs approached high-net-worth
*Corresponding author: Chris Graves, The University of Adelaide, Adelaide Business School,
Nexus 10 Building, 10 Pulteney Street, Adelaide, 5001, SA, Australia,
E-mail: chris.graves@adelaide.edu.au. https://orcid.org/0000-0003-2456-1702
Pi-Shen Seet, Edith Cowan University, School of Business and Law, Joondalup, WA, Australia
Anneleen Michiels, Hasselt University Faculty of Business Economics, Research Center for
Entrepreneurship and Family Firms, Universiteit Hasselt, Hasselt, Belgium. https://orcid.org/
0000-0002-2417-0106
Entrep. Res. J. 2022; aop

individuals or angel investors to finance their ventures. In the 20th century,
PE became more formalised by establishing private equity firms worldwide
(BVCA 2012).
Although some critics argue that short-term profit orientation of PE firms can
negatively affect the ability of PE-invested firms to initiate and sustain entrepre-
neurial management (Campello 2003), other researchers have found that PE can
help firms refocus and concurrently increase entrepreneurial and administrative
management (Bruining and Wright 2002). Wright et al. (2000) argued that the role
of PE-backed firms was positive in that it allowed management to be empowered to
take entrepreneurial actions and develop new forms of employee cooperation. In
their study of 600 Dutch firms that underwent a buy-out during 1996–2004,
Bruining, Verwaal, and Wright (2013) found that most PE-backed buy-outs
significantly increase entrepreneurial management practices. Likewise, Davis
et al. (2014) found in their research on US firms that due to an intensification of
creative destruction immediately following PE-investment, in the first two-year
post-acquisition period, PE-invested firms, on average experienced a two percent
productivity improvement compared with the control group of firms. There is also
evidence that PE-invested firms have significant increases in aspects of corporate
entrepreneurship and innovation, including new product development (Bull 1989;
Wright et al. 2006) and patent citations (Lerner et al. 2008). Similarly, PE can play
an essential role in improving entrepreneurial management in family businesses.
Gurung and Lerner (2008) note that while family-owned firms have substantial
‘tails’of poorly managed firms, those with PE investment appear to be consistently
well managed.
This paper further explores the demand-side arguments of family businesses’
intentions to use PE, focusing on the pre-deal phase. Family owners may look to
use PE to grow the business, exit as owners and assist in pruning or restructuring
the current ownership configuration (e.g. Dreux 1990; Wennberg et al. 2011). As the
current generation of owners face difficulties in growing their firms or managing
inter-generational transfer or exit (Sharma, Chrisman, and Chua 2003a; Shepherd
and Zacharakis 2000; Smith and Amoako-Adu 1999; Wasserman 2003), it has been
suggested that PE is one possible solution to overcoming these difficulties (Dawson
2011; Howorth, Westhead, and Wright 2004; Scholes, Westhead, and Burrows
2008).
Despite this, as is discussed below, prior research suggests that family owners
are more averse to using PE financing as compared to non-family businesses
(Bueno, Román, and Portillo 2019; Gallo, Tapies, and Cappuyns 2004; Poutzouris
2001; Schickinger, Leitterstorf, and Kammerlander 2018; Wu, Chua, and Chrisman
2007). Yet, some family businesses utilise PE financing for growth or ownership
restructuring, and the PE route is becoming a more common option for family firms
2C. Graves et al.

(Dawson and Barrédy 2018; Khoury et al. 2022). However, very little is known about
the demand-side of the pre-deal phase. Our research question is therefore to
examine the factors internal to the family business (such as succession strategy, or
the owner-managers’familiarity with the PE industry), that may determine which
types of family businesses are more open to PE than others. Moreover, a recent
systematic literature review of 50 academic studies on PE and family firms
(Schickinger, Leitterstorf, and Kammerlander 2018) shows that the limited
research on this topic is characterised by a strong regional bias on Europe and call
for more international studies to better understand and explain this phenomenon
especially in the pre-deal phase, which this study is focussed on. Another recent
bibliometric analysis of the broader PE research field by Sharma et al. (2022) also
points to geographic bias towards the USA and Europe.
To advance the understanding of the financing behaviour of family firms
(such as the use of PE financing), there is a call for researchers to explore the
influence of non-economic factors such as owner characteristics (e.g. attitudes,
desire for control, goals and intentions) (Koropp et al. 2013, 2014; Matthews et al.
1994; Romano, Tanewski, and Smyrnios 2001). Given that owner characteristics
such as the desire for control can change over time, it is reasonable to expect that
intentions towards using particular sources of finance (such as PE) may also
change. It is also unclear whether the reluctance of family owners to consider using
PE is consistent across different uses of PE (for growth or to prune/restructure
ownership). Croce and Marti (2016) call for more research on other factors, such as
exit and succession intentions, which may influence attitudes towards using PE
financing.
While most of the research focuses on motives for selling shares to PE, there is
limited understanding as to which reasons dominate the different phases of the
development of family firms (Schickinger, Leitterstorf, and Kammerlander 2018).
Traditional finance theories, in their current form, cannot fully explain financing
behaviour in family firms. Therefore, it is worth investigating further how behav-
ioural arguments (e.g. the theory of planned behaviour) can help explain financing
behaviour. Despite the increasing attention to the behavioural financing approach,
it remains underused and has considerable potential in analysing financing
decisions in family firms (Michiels and Molly 2017).
This paper attempts to go some way to address these calls for further research
by examining the factors that influence a family firm owner’s intention towards
using PE financing. In this study, the theory of planned behaviour (Ajzen 1991) is
used to examine family firms’intentions to use PE. Based on the ordinal regression
analysis of data collected from 254 privately-owned Australian family firms, we
find that the general attitude towards PE, plans to exit the family business in the
future and knowledge of PE significantly influence the intentions to use PE.
Family Firm Intentions to Use Private Equity 3

This study contributes to our understanding of the financing behaviour of
family firms in four important ways. Firstly, the results of this study further our
understanding of the influences on family firm owners’intentions to use PE for two
distinct roles, namely, (1) for growth and (2) to restructure the current ownership
configuration. Secondly, this study highlights how Ajzen’s (1991) theory of plan-
ned behaviour can be applied to a family business context to explain determinants
of the intentions of family owners to use PE financing. Thirdly, this study high-
lights the importance of educating owners on PE financing in order to foster more
positive intentions to use such finance. Finally, we explicitly focus on demand-side
arguments of PE investments instead of supply-side arguments, which have been
widely investigated in previous PE research (Schickinger et al. 2022; Seghers,
Manigart, and Vanacker 2012). By taking the perspective of the family firm, we also
answer a recent call by Michiels and Molly (2017) to clearly distinguish between
demand-side and supply-side factors when examining family business financing
decisions.
The rest of this paper is organised as follows. We begin by reviewing the liter-
ature on private equity and family firms. We then draw on the theory of planned
behaviour to develop hypotheses concerning the drivers of family businesses’
intention to use private equity: their general attitude towards private equity, sub-
jective norms and perceived behavioural control. The paper continues with a dis-
cussion of the paper’s methods and a discussion of the results. Finally, we offer
thoughts on this paper’s contributions and suggest directions for future research.
2 Literature Review and Hypotheses
2.1 Family Firms and Private Equity
Although research on PE in family firms is still in its infancy, academic interest in
this topic has increased considerably during the last decade (Neckebrouck,
Meuleman, and Manigart 2021; Schickinger, Leitterstorf, and Kammerlander 2018).
Prior research into PE investment in family firms can be grouped based on the three
phases of interaction between family businesses and private equity investors.
First, several studies investigate the pre-deal phase; e.g. owner attitudes towards
using PE (e.g. Gallo, Tapies, and Cappuyns 2004; Lappalainen and Niskanen 2013;
Poutziouris 2001; Romano, Tanewski, and Smyrnios 2001; Tappeiner et al. 2012;
Wu, Chua, and Chrisman 2007) or attributes used by PE firms when determining
what family firms to invest in (e.g. Ahlers et al. 2016; Dawson 2011; Howorth,
Westhead, and Wright 2004; Scholes, Westhead, and Burrows 2008; Upton, Teal,
and Felan 2001). Second, studies that focus on the deal-phase investigate aspects
4C. Graves et al.

such as valuation (e.g. Ahlers, Hack, and Kellermanns 2014; Granata and Gazzola
2010) and the negotiation between both parties (e.g. Ahlers et al. 2016; Scholes,
Westhead, and Burrows 2008). Finally, research on the post-deal phase
investigates the outcomes associated with PE investment into family firms on both
the firm level, such as growth and efficiency (e.g. Chrisman et al. 2012b; Goossens,
Manigart, and Meuleman 2008) and the family level, such as conflict
(e.g. Achleitner et al. 2010; Ahlers, Hack, and Kellermanns 2014).
This paper focuses explicitly on the pre-deal phase and takes the perspective
of the family when examining the rationale for private equity investments in family
firms. In broad terms, prior literature suggests that family owners may look to use
PE to grow the business (Martí, Menéndez-Requejo, and Rottke 2013; Tappeiner
et al. 2012), exit as owners (Dawson 2011; Howorth, Westhead, and Wright 2004;
Scholes et al. 2007, 2010; Wennberg et al. 2011; Wiklund et al. 2013), and assist in the
pruning/restructuring of the current ownership configuration (e.g. due to family
conflict) (Dawson 2011; Dreux 1990; Tappeiner et al. 2012). Yet, empirical research on
the pre-deal phase is virtually non-existent, with the exception of Tappeiner et al.
(2012), who rely on case studies of 21 large German family businesses.
Additionally, much of the existing research on PE investment in family firms
has focussed on the supply-side: e.g. the decision-making criteria that are
employed by PE investors selecting family firms (Dawson 2011; Dawson and
Barrédy 2018); private equity firm perceptions of investee firms affective deal
commitment in buy-out transactions (Ahlers, Hack, and Kellermanns 2014) or the
financing choices of PE investors versus single family offices (Schickinger et al.
2022). However, little is known on the demand-side, i.e. about what determines the
intention towards using PE, how it is shaped in the context of a family business and
how it might differ across different types of family businesses (Di Toma and
Montanari 2017; Seet et al. 2010).
In this study, we attempt to address these gaps by drawing on the theory of
planned behaviour to further understand the intentions of family firms to use PE
financing. This also allows us to move beyond comparing the “average”family
firm to the “average”non-family firm, thereby acknowledging and further
exploring determinants of heterogeneity amongst family firms (Payne 2018).
2.2 The Theory of Planned Behaviour in a Family Business
Context
Ajzen’s (1991) theory of planned behaviour (TPB) has been applied to a limited
extent by family business studies (Kuiken 2015). Researchers have, for example,
applied the theory to examine the determinants of succession planning activities
Family Firm Intentions to Use Private Equity 5

(De Massis et al. 2013; Sharma, Chrisman, and Chua 2003b; Zellweger, Sieger, and
Halter 2011), attitudes towards debt financing (Koropp et al. 2013) and financing
behaviour (Koropp et al. 2014) in family firms. The fundamental tenet of the TPB is
that it is an individual’s intentions that determine the likelihood that a particular
behaviour will be undertaken (Ajzen 1991). This is because “intentions are
assumed to capture the motivational factors that influence a behaviour; they are
indications of how hard people are willing to try, of how much of an effort they
are planning to exert, to perform the behaviour”(Ajzen 1991, p. 181). Consequently,
the stronger the intention, the more likely the associated behaviour will be carried
out. In other words, an individual’s behavioural intention to perform a particular
behaviour provides the most accurate prediction of behaviour (Fishbein and Ajzen
1975). This study applies the TPB (Ajzen 1985, 1991) as a key theory because of its
theoretical usefulness in examining intentions to use PE.
Although this study does not examine actual use of PE, the TPB suggests that
an intention to engage in the behaviour (e.g. an intention to use PE) is the best
predictor of behaviour (e.g. actual use of PE) (Van Breukelen, Van der Vlist, and
Steensma 2004). This intention represents the degree to which an actor has a
conscious plan or decision to exert effort to carry out a behaviour (Conner and
Armitage 1998; Eagly and Chaiken 1993).
Ajzen (1991) further argues that intentions can be predicted and explained by
the attitude towards the behaviour, subjective norms and perceived behavioural
control. Attitude refers to the extent to which the person is favourably or unfav-
ourably disposed to the intended behaviour. Subjective norms refer to the extent to
which the intended behaviour is subject to social pressures. Perceived behavioural
control refers to the individual’s ability (ease or difficulty) to undertake the
intended behaviour. Figure 1 illustrates the TPB and its components.
Attitude toward
using PE
Subjective norms
Intention to use
PE
Use of PE
Perceived
behavioural
control
Figure 1: Theory of planned behaviour in the family firm context of intention to use PE.
6C. Graves et al.

Below we use this theory to explain how these three predictive variables
(attitude towards PE, subjective norms and perceived behavioural control)
together lead to the formation of a behavioural intention to use PE in family firms
and develop relevant hypotheses.
2.3 Attitude towards PE among Family Firms
The first factor that is expected to influence the intention toward a behaviour is the
attitude a person has toward that behaviour (Ajzen 1991). In the context of this
study, we, therefore, investigate the CEO’s general feeling of favourableness or
unfavourableness towards PE financing. After all, financing decisions in family
firms are generally made by one single decision-maker, usually the owner-
manager (Feltham, Feltham, and Barnett 2005). The CEO’s values and beliefs are
thus considered significant drivers in strategic decision-making (Heck 2004), such
as the decision to utilise PE.
Despite the argued benefits associated with PE investment (Salerno 2019), it is
commonly assumed that family owners have a negative attitude towards this form
of financing where possible because of the implications of ceding some or most of
its control to outside investors (La Porta, Lopez-de-Silanes, and Shleifer 1999;
Poutziouris 2001; Wu, Chua, and Chrisman 2007). Poutziouris (2001), for example,
argues that family firms are reluctant to use PE because of the “war stories”
associated with PE involvement, such as clashes in values, stripping businesses of
assets and employees, and eroding the good name of the family in the community.
Other studies have confirmed this, indicating that family control is significantly
negatively associated with the use of PE (Gallo, Tapies, and Cappuyns 2004;
Romano, Tanewski, and Smyrnios 2001; Wu, Chua, and Chrisman 2007). They
explain these findings by the so-called empathy gap that exists due to substantially
differences in objectives between the two parties, which results in family owners’
reluctance to engage with PE providers (Poutziouris 2001; Seet et al. 2010). After
all, family owners typically have their wealth concentrated in one firm and have
long-term objectives that are not necessarily solely economic in nature (Chris-
man et al. 2012a; Gomez-Mejia et al. 2007). On the other hand, PE firms invest in a
portfolio of firms and focus on maximising their return in about four to seven years
(Wood and Wright 2009). Accordingly, we hypothesise that the family firms’
intention to use PE is influenced by the family firm CEO’s attitudes towards PE. Put
formally,
H1: The intention of family firms to use PE is positively associated with their
general attitude towards PE.
Family Firm Intentions to Use Private Equity 7

2.4 Subjective Norms Surrounding Exit and Succession and
Implications for PE
The second factor that is likely to influence the family firm’s intention to use PE,
according to the theory of planned behaviour, is subjective norms. These are
defined as a person’s perception that most people who are important to him/her
think (s)he should or should not perform the behaviour in question (Fishbein and
Ajzen 1975). As highlighted by Wu, Chua, and Chrisman (2007) the desire for family
control influences the owners’choice of different sources of finance. This desire for
control has been attributed to the family’s socio-emotional wealth objective to
preserve family bonds to the firm through dynastic succession (Berrone, Cruz, and
Gomez-Mejia 2012). In essence, the owners make choices between behaviours that
preserve control (such as family succession) and the firm’s current and future
financial needs. However, this desire is by no means universal amongst family
firms:
Rather than assuming that internal ownership transition is the preferred choice and external
ownership transfer a last resort, we have taken the view that ownership transition in family
firms can be seen as a choice. Some family firms choose to transfer ownership inside the
family to the next generation of family owners, whereas other family firms choose to sell their
firms to new owners outside the family. (Wiklund et al. 2013, p. 1332)
So, the choice of succession strategy is influenced by whether or not the family
intends to perpetuate control. This intention to remain in control is highlighted by
family financing norms such as restricting ownership to existing owners and their
relatives or limiting the ability to sell to outsiders (Byrom and Lehman 2009).
The families’intended succession strategy will therefore influence their
intention towards using PE financing through its family financing norms. Specif-
ically, owners who intend on using succession strategies that preserve family
control are less likely to consider using PE finance as it will undermine their
preference for family control (Scholes et al. 2008). Conversely, owners who intend
on using succession strategies where family control will be relinquished are more
likely to consider using PE finance as family control is no longer a determining
factor. There will be situations where selling the family firm rather than perpetu-
ating the continuity of family ownership and control is the most appropriate action
for family leadership to take as investors (e.g. to exit from a particular industry)
(Wright and Bruining 2008). We argue that in such circumstances (i.e. where the
family’s succession strategy is to sell the business), the family owners will be
prepared to forego sole control and consequently more willing to utilise PE in the
business, whether to grow the business or restructure the current ownership.
8C. Graves et al.

Conversely, in situations where intended succession plans involve the family
perpetuating the continuity of family control (e.g. by appointing outside man-
agement but retaining ownership and control), it is proposed that family firms are
less likely to contemplate using PE for growth and/or restructuring ownership.
To summarise, we propose that the current owners’intended succession
strategies explain differences in their intentions to use PE investment in privately-
owned firms. The following hypotheses are proposed to examine the influence of
succession strategies, which preserve control of current owners ((a) transfer con-
trol to the next generation, (b) maintain family control but appoint outside man-
agement) or relinquish control of current owners ((c) sell the business entirely) on
their intention to use PE:
H2a: The intention of family firms to use PE will be negatively associated with their
intention to pass on the business to the next generation of their family.
H2b: The intention of family firms to use PE will be negatively associated with their
intention to appoint outside management but retain control.
H2c: The intention of family firms to use PE will be positively associated with their
intention to exit by selling the business.
2.5 Perceived Behavioural Control over Accessing PE
According to the theory of planned behaviour, the third factor that influences
behavioural intentions is the perceived behavioural control over access to PE, or,
as defined by Ajzen (1991, p. 181), “people’s perception of the ease or difficulty of
performing the behaviour of interest.”In the context of our study, we argue that the
perceived behavioural control of the family owners pertain to the extent they
believe they have control over the PE process and therefore see it as feasible, since
perceived feasibility perceptions can be considered as surrogate for perceived
behavioural control (Krueger and Carsrud 1993). As established by previous
research, perceived behavioural control incorporates both self-efficacy (i.e. inter-
nal factors) and external factors that may facilitate or hinder the performance of a
particular behaviour (Ajzen 2002; Zellweger, Sieger, and Halter 2011).
Self-efficacy reflects the individual’s conviction that (s)he can perform in a
certain domain or task (Gist 1987), in this case: engaging with PE investors. As
highlighted by previous research, family firms often lack the know-how and expe-
rience in dealing with private equity investors (Poutziouris 2001; Seet et al. 2010).
This lack of understanding of the various types of schemes and processes offered by
Family Firm Intentions to Use Private Equity 9

PE professionals is often referred to as the knowledge gap (Poutziouris 2001;
Schickinger, Leitterstorf, and Kammerlander 2018; Seet et al. 2010). Conversely,
having used PE before or having a profound understanding of PE’s processes should
increase a family firm owner’s belief in his or her ability to successfully engage with
PE investors. In other words, we argue that higher knowledge of, or familiarity with,
PE increasesthe perceived behavioural control ofthe key decision maker, which will
increase the intentions of using PE. Put formally;
H3a: The intentions of family firms to use PE will be positively associated with their
level of knowledge of PE.
Next, we argue that the perceived feasibility perception of PE is not only
formed by the internal factor (i.e. knowledge of PE) but also by external factors that
reach beyond that of the owner. More specifically, we hypothesise that the family
business owners’perceptions about the current market conditions shape the
perceived feasibility perception of PE, which influences the intention to use PE. Put
formally;
H3b: The intentions of family firms to use PE will be negatively associated with
perceived unfavourable market conditions.
2.6 Model of Family Firms’Intentions to Use PE
Figure 2 outlines the conceptual model, the six hypotheses, and their direction to
be empirically tested in this study. Drawing on the TPB, the model highlights that
the intentions of a family firm to use PE are influenced by three concepts. Firstly,
the intention of using PE will be influenced by their general attitude towards PE.
Secondly, the intention of using PE will be influenced by the subjective norms
underlying different succession options. Specifically, succession intentions
seeking to preserve family control will negatively affect the intention to use PE.
Alternatively, intentions to exit the business by sale suggest the owning family
reduces the need for control and, therefore, will be more inclined to use PE. Finally,
a family business’s perceived behavioural control over accessing PE will influence
its intention of using PE. Specifically, family firms will be more likely to use PE
when they have a high degree of knowledge of PE as they will perceive to have the
knowledge and insights to successfully negotiate a PE deal. Conversely, family
firms which face unfavourable market conditions will be less likely to use PE as
they will perceive to have little control in attracting PE given the unfavourable
environment.
10 C. Graves et al.

3 Methods and Results
3.1 Sample, Data Collection and Respondents
Data was collected through a survey of firms to examine the influence of different
owner succession strategies on the current owners’intentions towards using pri-
vate equity financing. Based on survey instruments developed in previous aca-
demic research, a 42-item questionnaire was developed with the assistance of
business researchers, business owners and advisors. A questionnaire pilot was
tested using a range of stakeholders (academics, practitioners, family business
owners), and the feedback received was incorporated into the final questionnaire.
The final questionnaire contained six sections: firm and owner characteristics, firm
performance, management and strategic issues, practices and attitudes to
Figure 2: Conceptual model.
Family Firm Intentions to Use Private Equity 11

financing alternatives, succession and exit plans, and sources of advice for busi-
ness and financing issues.
Using the Dunn and Bradstreet database, 2300 Australian privately-owned
(i.e. unlisted) firms were randomly selected from two states in Australia, repre-
senting regions of high and low economic growth and PE activity (South Australia
and Victoria). The questionnaire was sent to the chief decision maker (the Chief
Executive Officer) with a cover letter that explained the purpose of the study and
outlined an incentive to encourage participation (donation made to charity).
A follow-up letter was sent three weeks after the initial questionnaire was
distributed, which resulted in 385 completed questionnaires (response rate of
16.7%). The focus of this study is on family firms within the sample, which was
defined as those firms that were majority-owned (i.e. >50%) by a single family,
which is consistent with that used in previous studies (Chua, Chrisman, and
Sharma 1999). Using this family business definition, around one-third (131 ques-
tionnaires) of responding firms were identified as non-family firms and were
removed from the sample. Around two-thirds (254 questionnaires) were identified
as family firms which is consistent with percentages reported in previous
Australian family business studies (see for example Graves and Thomas 2004).
Consequently, 254 questionnaires from family businesses were used for this study.
As highlighted in Table 3, 81 percent of the respondents were the chief-decision
maker. The remaining 19 percent of respondents were from the founder, a share-
holder or a senior management team member.
Westhead and Cowling (1997) and Shanker and Astrachan (1996) emphasise
that family business statistics are susceptible to the definition employed. Because
of this and the fact that variations of the above definition have been used in prior
research, the robustness of the results in this study was assessed by varying the
family business definition used. Specifically, the following two alternative family
business definitions were used for robustness tests (1) a firm that was wholly
(100%) family-owned and (2) a firm that was majority family-owned and had a
family CEO. For brevity, the results of these robustness tests are not reported in this
paper. The robustness tests highlighted that the significance and direction of the
results reported in Tables 4 and 5 remained the same regardless of the family
business definition employed. That is, the results reported in Tables 4 and 5 were
not sensitive to the family business definition used.
3.2 Measurement of Variables
A summary of all the dependent, independent and control variables included in
this study is provided in Table 1.
12 C. Graves et al.

Table :Measures used in the study.
Variable Measure
Intentions to use PE to grow the
business
Each respondent was asked their intentions to use PE to grow
the business using a -point Likert scale (= very unlikely to
= very likely)
Intentions to use PE to restructure
o/ship
Each respondent was asked their intentions to use PE to
restructure the ownership of the business using a -point
Likert scale (= very unlikely to = very likely)
Attitude towards PE in general Each respondent was asked to indicate their general attitude
towards PE using a -point Likert scale (= negative to
= positive)
Subjective norm –family
succession
Each respondent was asked whether they were considering
passing the business on to the next generation of the family
as part of their exit/succession plan using a -point Likert
scale (= very unlikely to = very likely)
Subjective norm –outside
management
Each respondent was asked whether they were considering
retaining ownership/control but passing on leadership to a
non-family CEO as part of their exit/succession plan using a
-point Likert scale (= very unlikely to = very likely)
Subjective norm –sell the
business
Each respondent was asked whether they were considering
selling the business as part of their exit/succession plan
using a -point Likert scale (= very unlikely to = very likely)
Perceived behavioural control –
knowledge of PE
Each respondent was asked to identify their level of under-
standing of PE using four -point likert scale questions
(= very low to = very high). Questions addressed their
knowledge of how to arrange a PE deal, what firm charac-
teristics are attractive to PE investors, benefits of PE, and
ways in which PE can assist growing/restructuring the busi-
ness. The scores for the four questions were averaged to
calculate the overall measure of “knowledge of PE.”Measure
had a cronbach alpha of .
Perceived behavioural control –
market conditions
Each respondent was asked to identify whether they believed
the poor market conditions would limit their ability in
attracting PE investment using two -point likert scale
questions (= not at all to = very likely). Questions
addressed the low growth prospects of their business and low
growth prospects of the principal industry they operated in.
The scores for the two questions were averaged to calculate
the overall measure of “market conditions.”Measure had a
cronbach alpha of .
Financial objectives Based on the approach and financial variables used by Gupta
and Govindarajan (), each respondent was asked to
identify the importance of six financial objectives to the
business using a -point Likert scale (= not important at all
to = extremely important to the business). These items were
Family Firm Intentions to Use Private Equity 13

3.2.1 Dependent Variables: Intention to Use PE for Growth and Restricting
Ownership
As highlighted in the introduction section, this study focuses on the intentions of
using “outside”(formal and informal) PE, which is defined as “capital obtained
from sources other than existing shareholders or their relatives”(Ou and Haynes
2006, p. 157). This study investigates the determinants of the intention of family
firms to use PE for two distinct purposes, namely, to grow or to restructure the
ownership composition (Howorth, Westhead, and Wright 2004; Martí, Menéndez-
Requejo, and Rottke 2013; Scholes et al. 2007, 2010; Tappeiner et al. 2012).
Intentions to use PE to exit the business was not included as a third possible
dependent variable because of its self-evident nature. That is, prior research has
highlighted how PE has been used by business families to successfully exit as
owners (Dawson 2011; Howorth, Westhead, and Wright 2004; Scholes et al. 2007,
2010; Wennberg et al. 2011; Wiklund et al. 2013). What is relatively unknown are
factors that influence their intentions of using PE to finance the growth or
restructuring of the business ownership.
Table :(continued)
Variable Measure
“sales growth”,“net profit”,“market share”,“return-on-in-
vestment”, and “firm value.”The scores for the five financial
objectives were averaged to calculate the overall measure of
the importance of “business objectives.”Measure had a
cronbach alpha of .
Firm age Years the business been operating (regardless of changes in
ownership)
Firm size Number of full-time equivalent employees
Industry (–) Businesses were identified to belonging to one of the
following industry categories using five dichotomous vari-
ables (= no, = yes): construction, manufacturing, agri-
culture, retail, wholesale, and services. The ‘services’
industry group was designated as the reference group (i.e. –
=industry categories) for the ordinal regression
modelling
Respondent age Age of the survey respondent
Respondent education level Level of education of the survey respondent was measured
using an -point likert scale (= primary school to = post-
graduate degree)
Respondent key decision-maker Whether the survey respondent was the key decision-maker
of the business (= no, = yes)
14 C. Graves et al.

Drawing on previous approaches to measuring intentions of using particular
types of finance (Lappalainen and Niskanen 2013; Michaelas, Chittenden, and
Poutziouris 1998), owners were asked to score on a scale from one to five
(very unlikely to very likely) the likelihood that they will use PE: (1) as a means to
grow the business; (2) as a means to restructure the current ownership of the
business. Because there are two dependent variables (DVs), results to highlight the
effect of the independent and control variables on the intention to use PE for (1)
growth and for (2) restructuring ownership are presented in Tables 4 and 5,
respectively.
3.2.2 Independent Variables
3.2.2.1 Attitude Towards PE in General
To measure the influence of attitude towards PE on the intention of using PE, each
respondent was asked to indicate their general attitude towards PE using a 5-point
Likert scale (1 = negative to 5 = positive).
3.2.2.2 Subjective Norms –Intended Succession/Exit Strategy
As highlighted earlier in this paper, this study focuses on the influence a family’s
subjective norms regarding succession on their intentions of using PE. DeTienne
and Cardon (2012, p. 353) define entrepreneurial exit as “the process by which the
founders of privately-held firms leave the firm they helped to create; thereby
removing themselves …from the primary ownership and decision-making struc-
ture of the firm.”They argue that exit strategies can be grouped according to family
succession, sale or liquidation. It is not always possible for family firms to enact
family succession because of the lack of suitable or available next-generation
family members to take over the leadership of the business. In such circumstances,
family succession may be enacted where the current generation passes on the
management baton to outside management but retain ownership (Handler 1994).
As a consequence, owners were asked to score on a scale from one to five
(very unlikely to very likely) the likelihood that they would undertake one of the
following three types of exit/succession strategies:
1
(1) “Family Succession”where
leadership succession is intended to be passed on to the next generation of the
family; (2) Appoint “Outside Management”(i.e. not related to the owners) but
retain ownership within the family; (3) “Sell the Business”(whether by acquisition,
independent sale, employee buy-out of IPO).
1Liquidation of business assets was not considered as one of the exit strategies because PE
finance is not usually an option to owners when they intend on closing down (rather than grow) the
business.
Family Firm Intentions to Use Private Equity 15

3.2.2.3 Perceived Behavioural Controls (PBC)
As highlighted earlier in this paper, this study focuses on two variables that may
influence the perceptions of being able to successfully acquire PE financing.
Specifically, we focus on the respondent’s knowledge of PE and market conditions.
In this paper, we argue that the intentions to use PE will be higher when they have a
good understanding of PE as they’re more likely to perceive control over acquiring
such finance. In contrast, the intentions of using PE will be lower when the family
perceives that the current market conditions will make it challenging to acquire PE
financing. Each respondent was asked to identify their level of understanding of PE
using four
2
5-point Likert scale questions (1 = very low to 5 = very high). The
composite measure “Perceived Behavioural Control (PCB) –Knowledge of PE”had
a Cronbach alpha of 0.963. Regarding market conditions, each respondent was
asked to identify whether they believed the poor market conditions would limit
their ability to attract PE investment using two
3
5-point Likert scale questions
(1 = not at all to 5 = very likely). The composite measure “Perceived Behavioural
Control (PCB) –Market Conditions”had a Cronbach alpha of 0.927.
3.2.2.4 Control Variables
Other factors known to influence the use of PE were controlled for in this study. The
importance of “Financial Objectives”was controlled for because of their known
effect on the financing patterns of privately-owned firms (Chaganti, DeCarolis, and
Deeds 1996; Romano, Tanewski, and Smyrnios 2001). Drawing on the work by
Gupta and Govindarajan (1984) six items
4
were used to measure the importance of
financial objectives. The composite measure had a Cronbach alpha of 0.76. “Firm
Age”and “Firm Size”were controlled for because they have been found to influ-
ence access to finance (Beck and Demirguc-Kunt 2006; Binks and Ennew 1996).
Often associated with the liability of newness, smaller and younger firms may be
more reliant on PE finance because of their difficulty in accessing more traditional
forms of finance because of a lack of trading history and relationships with pro-
viders of finance. “Firm Age”was measured in years since the firm was first
established, while “Firm Size”was measured in terms of the number of full-time
equivalent employees. “Industry”was controlled for because growth rates, and
consequently the need for finance, are influenced by the industry they operate
within. Firms were classified into one of five “Industry”categories.
5
As Industry 5
contained the greatest number of firms, it was used as the reference category when
2See Table 1 for more details.
3See Table 1 for more details.
4See Table 1 for more details.
5See Table 1 for more details.
16 C. Graves et al.

undertaking the statistical analysis. That is, only Industries 1–4 were included in
the statistical modelling presented in Tables 4 and 5 (n –1 = 4 industry categories
included). Demographic characteristics of the survey respondent were also
controlled for. These included “Respondent Age,”“Respondent’s Education
Level,”and whether they were the “Key Decision-maker”in the firm.
3.3 Data Analysis
As outlined above, as the two dependent variables were measured using a 5-point
Likert scale, Ordinal Linear Regression analysis was used to test the study’s
hypotheses while controlling for financial objectives, firm age and size, industry
and respondent characteristics.
Critical assumptions required for the use of ordinal regression were met in this
study. Firstly, the dependent variables were measured using an ordinal scale.
Secondly, there were no concerns regarding the multicollinearity of independent
and control variables. Specifically, the Pearson matrix (Table 2) indicates that are
no correlation values between explanatory variables that reach 0.5. Also, Variance
Inflation Factor (VIF) scores of the independent and control variables reported in
Table 2 are below 2. Finally, as highlighted at the bottom of Tables 4 and 5, the
parallel lines assumption (proportionality of odds assumptions) was not signifi-
cant for all models, highlighting that this critical assumption underlying Ordinal
Linear Regression analysis is satisfied.
4 Results
4.1 Descriptive Statistics
Table 3 present the descriptive statistics of the variables used in this study. The
median score of the two dependent variables (intentions of using PE for growth, for
restructuring ownership) was 2 (“unlikely”to use PE). This suggests most family
firms do not intend to use PE in the future.
With regard to the independent variables, the median score for attitude
towards PE, in general, was 3 (“Neutral”) and suggests that most family businesses
have a neutral attitude towards PE. Concerning subject norms surrounding suc-
cession and exit, both the mean and median scores indicate that keeping the
business in family hands (through family succession or using outside management
but retaining control) is preferred over selling the business. Concerning perceived
behavioural controls, knowledge of PE had a median score of 2.25 (ranging from 1
Family Firm Intentions to Use Private Equity 17

Table :Correlation matrixa,b,c,d.
VIF         
Attitude towards PE
in general
. .
SN –family
succession
. −. .
SN –outside
management
. . . .
SN –sell the
business
. .**
−.** .** .
PBC –knowledge
of PE
. . . .** . .
PBC –market
conditions
. .**
−. −. . −. .
Financial
objectives
. −. . . . . −. .
Firm age . −. .**
−. −.**
−. . . .
Firm size . −. . .**
−. .**
−. −. .** .
 Industry . . . −. −. −. . −. −. . .
 Industry . . −. . . −. . −. . −. −.** .
 Industry . −. .*. −. −. . . .**
−. −. −. .
 Industry . . . . . . . −. −. −. −.**
−.**
−.*.
 Industry . −. −. −. −. . −.** . −. . −.**
−.**
−.**
−.** .
 Respondent age . . . −.**
−. −. . −. . −. −. . −. . . .
 Respondent educa-
tion level
. . −. .*. . −. −.*
−. .**
−. . . −. −. . .
 Respondent key
decision-maker
. . −. −. . −. . −. −. −.*
−. −. −. . . .**
−. .
aCorrelation matrix relates to  respondents and presents the correlations between independent variables included in the ordinal regression modelling. bSignificance level: *if
p<.; **if p<.; ***if p<. (two-tailed p-values are used in determining significance). cVIF refers to the variance inflation factor. The critical value of the VIF to test for
multicollinearity is . Gujarati () suggests that there is no evidence of multicollinearity unless the VIF of a variable exceeds . All values used in this study were well below this
critical level. dIndustry categories: Industry (construction), Industry (manufacturing), Industry (agriculture), Industry (retail/wholesale), Industry (services); SN, subjective norm;
PBC, perceived behavioural control.
18 C. Graves et al.

to 5), suggesting that most family firms sampled have a moderate knowledge of PE.
Market conditions had a median score of 3 (“Moderate”), which indicates that
unfavourable market conditions were perceived to negatively affect family firms’
ability to attract PE financing.
The remainder of this section discusses the descriptive statistics of the control
variables used in this study. Financial objectives had a median score of 4
(“Important”), which suggests that achieving such objectives is important to
family firms. The median age of family firms sampled was 21 years, with a median
number of full-time equivalent employees of 11. As the industry variables are
dichotomous, the mean scores indicate the proportion of family firms sampled in
each industry category. Of the family firms sampled, 13 percent principally
operated in Industry 1 (construction), 15 percent in Industry 2 (manufacturing),
7 percent in industry 3 (agriculture), 21 percent in Industry 4 (retail/wholesale) and
43 percent in Industry 5 (services). The median age of the respondent was 53 years
Table :Descriptive statisticsa,b.
Variable Number
of obs.
Mean Median Std.
Dev.
Min. Max.
Likelihood of using PE to grow the
business
 . . . . .
Likelihood of using PE to restructure
o/ship
 . . . . .
Attitude towards PE in general  . . . . .
Subj. norm –family succession  . . . . .
Subj. norm –outside management  . . . . .
Subj. norm –sell the business  . . . . .
PBC –knowledge of PE  . . . . .
PBC –market conditions  . . . . .
Financial objectives  . . . . .
Firm age  . . . . .
Firm size  . . . . .
Industry   . . . . .
Industry   . . . . .
Industry   . . . . .
Industry   . . . . .
Industry   . . . . .
Respondent age  . . . . .
Respondent education level  . . . . .
Respondent key decision-maker  . . . . .
aIndustry categories: Industry (construction), Industry (manufacturing), Industry (agriculture), Industry 
(retail/wholesale), Industry (services); bSN, subjective norm; PBC, perceived behavioural control.
Family Firm Intentions to Use Private Equity 19

old, with a median level of education of 3 (technical/trade qualification). Overall,
81 percent of respondents were the primary decision-maker of the family business.
Based on the ordinal regression analysis results, the following sections
highlight what variables were found to significantly influence the intentions to use
PE for two purposes (growth and restructure ownership).
4.2 Intentions of Using PE for Growing the Family Business
Models 1–5 in Table 4 were used to examine the effect of the independent variables
on the intentions of a family business to use PE to grow the business (dependent
variable 1). The attitude towards PE, in general, was positively and significantly
associated (p< 0.01) with the intentions to use PE for growth (Model 2), providing
support for H1. With regards to subjective norms associated with succession,
intentions to sell the business was positively and significantly associated (p< 0.01)
with the intentions to use PE for growth (Model 3), providing support for H2c.
Although the succession intention to retain control through using outside man-
agement was significant (p< 0.05), it was opposite to the direction hypothesised
(Model 3). Therefore, H2b is not supported. No support was found for H2a (Model
3). As for perceived behavioural controls, knowledge of PE was positively and
significantly associated (p< 0.01) with the intentions to use PE for growth (Model
4), providing support for H3a. No support was found for H3b in Model 4.
Model 5 includes all the independent variables to ascertain their relative effect
on the intentions to use PE for growth. Overall, the results presented in Model 5
support H1, H2c, and H3a. These results suggest that a family’s attitude to PE in
general, the family’s intention to exit by selling the business, and the family’s
overall knowledge of PE all have a positive and significant influence over the
intentions of the family business to use PE for growth.
4.3 Intentions of Using PE to Restructure the Ownership of the
Family Business
Models 6–10 in Table 5 were used to examine the effect of the independent vari-
ables on the intentions of a family business to use PE to restructure the ownership
of the business (dependent variable 2). The attitude towards PE, in general, was
positively and significantly associated (p< 0.01) with the intentions of using PE for
restructuring ownership (Model 7), providing support for H1. In terms of subjective
norms associated with succession, intentions to sell the business was positively
and significantly associated (p< 0.01) with the intentions of using PE for
20 C. Graves et al.

Table :Ordinal regression results –grow the firma,b,c,d.
Dependent variable Intention of using PE –to grow the firm
Model Model Model Model Model 
β(Wald) β(Wald) β(Wald) β(Wald) β(Wald)
Independent variables
Attitude towards PE in general H(+). *** . ***
(.)(.)
SN –family succession Ha(−). .
(.)(.)
SN –outside management Hb(−). ** .
(.)(.)
SN –sell the business Hc(+). *** . ***
(.)(.)
PBC –knowledge of PE Ha(+). *** . ***
(.)(.)
PBC –market conditions Hb(−). −.
(.)(.)
Control variables
Financial objectives . . −. . .
(.)(.)(.)(.)(.)
Firm size . . . . .
(.)(.)(.)(.)(.)
Firm age −. −. . −. .
(.)(.)(.)(.)(.)
Industry . . . . .
(.)(.)(.)(.)(.)
Industry . . . −. .
(.)(.)(.)(.)(.)
Family Firm Intentions to Use Private Equity 21

Table :(continued)
Dependent variable Intention of using PE –to grow the firm
Model Model Model Model Model 
β(Wald) β(Wald) β(Wald) β(Wald) β(Wald)
Industry −. −. −. −. −.
(.)(.)(.)(.)(.)
Industry −. −. −. −. −.
(.)(.)(.)(.)(.)
Respondent age −. ** −. ** −. −. ** −.
(.)(.)(.)(.)(.)
Respondent education level −. . −. −. −.
(.)(.)(.)(.)(.)
Respondent key decision-maker −. −. −. −. *−.
(.)(.)(.)(.)(.)
Model diagnostics
–log likelihood (intercept only) . . . . .
–log likelihood (final) . . . . .
Chi square statistic . ns . *** . *** . ** . ***
Pseudo R-Square: Nagelkerke statistic . . . . .
Test of parallel lines –chi square statistic . ns . ns . ns . ns . ns
Observations     
aTwo different definitions for family business were employed to robust the results reported in Table . The primary family business definition used in this study (Table ) was a
firm that was majority family-owned. The two alternative definitions used for family business were: ()afirm that was wholly (%) family-owned and ()afirm that was
majority (>%) family-owned and had a family CEO. For brevity, the results of these robustness tests are not reported in a separate table. The robustness tests highlighted
that the significance and direction of the results reported in Table remain the same regardless of the family business definition employed. That is, the results reported in
Table were not sensitive to the family business definition employed. bThe Parallel Lines Test (Proportional Odds Test) tests a key underlying assumption of ordinal
regression, namely, that the relationships between the independent variables and the ordinal dependent variable (logits) are the same for all the logits. This test produced
non-significant results for all models presented in Table and indicates that this assumption is satisfied. cTwo-tailed p-values are used in determining significance: *if
p<.;**if p<.;***if p<..dIndustry categories: Industry (construction), Industry (manufacturing), Industry (agriculture), Industry (retail/wholesale), Industry
(services); SN, subjective norm; PBC, perceived behavioural control.
22 C. Graves et al.

Table :Ordinal regression results –restructure ownership of the firma,b,c,d.
Dependent variable Intention of using PE –to restructure o’ship of the firm
Model Model Model Model Model 
β(Wald) β(Wald) β(Wald) β(Wald) β(Wald)
Independent variables
Attitude towards PE in general H(+). *** . ***
(.)(.)
SN –family succession Ha(−). .
(.)(.)
SN –outside management Hb(−)−. −.
(.)(.)
SN –sell the business Hc(
+). *** . ***
(.)(.)
PBC –knowledge of PE Ha(+). *** . *
(.)(.)
PBC –market conditions Hb(−). −.
(.)(.)
Control variables
Financial objectives −. −. −. −. −.
(.)(.)(.)(
.)(.)
Firm size . . . . .
(.)(.)(.)(.)(.)
Firm age −. −. . −. .
(.)(.)(.)(.)(.)
Industry . . . . .
(.)(.)(.)(.)(.)
Industry . . . −. .
(.)(.)(.)(.)(.)
Family Firm Intentions to Use Private Equity 23

Table :(continued)
Dependent variable Intention of using PE –to restructure o’ship of the firm
Model Model Model Model Model 
β(Wald) β(Wald) β(Wald) β(Wald) β(Wald)
Industry . −. −. −. −.
(.)(.)(.)(.)(.)
Industry −. −. −. −. −.
(.)(.)(.)(.)(.)
Respondent age −. −. −. −. −.
(.)(.)(.)(.)(.)
Respondent education level −. −. −. −. −.
(.)(.)(.)(.)(.)
Respondent key decision-maker −. −. −. −. −.
(.)(.)(.)(.)(.)
Model diagnostics
–log likelihood (intercept only) . . . . .
–log likelihood (final) . . . . .
Chi square statistic . ns . *** . *** . ns . ***
Pseudo R-Square: Nagelkerke statistic . . . . .
Test of parallel lines –chi square statistic . ns . ns . ns . ns . ns
Observations     
aTwo different definitions for family business were employed to robust the results reported in Table . The primary family business definition used in this study (Table ) was a
firm that was majority family-owned. The two alternative definitions used for family business were: ()afirm that was wholly (%) family-owned and ()afirm that was
majority (>%) family-owned and had a family CEO. For brevity, the results of these robustness tests are not reported in a separate table. The robustness tests highlighted
that the significance and direction of the results reported in Table remain the same regardless of the family business definition employed. That is, the results reported in
Table were not sensitive to the family business definition employed. bThe Parallel Lines Test (Proportional Odds Test) tests a key underlying assumption of ordinal
regression, namely, that the relationships between the independent variables and the ordinal dependent variable (logits) are the same for all the logits. This test produced
non-significant results for all models presented in Table and indicates that this assumption is satisfied. cTwo-tailed p-values are used in determining significance: *if
p<.;**if p<.;***if p<.;ns if p>..dIndustry categories: Industry (construction), Industry (manufacturing), Industry (agriculture), Industry (retail/
wholesale), Industry (services); SN, subjective norm; PBC, perceived behavioural control; ns, not significant.
24 C. Graves et al.

restructuring ownership (Model 8), providing support for H2c. No support was
found for H2a or H2b (Model 8). With regards to perceived behavioural controls,
knowledge of PE was positively and significantly associated (p< 0.01) with the
intentions of using PE for growth (Model 9), providing support for H3a. No support
was found for H3b in Model 9.
Model 10 includes all the independent variables to ascertain their relative
effect on the intentions to use PE for restructuring ownership. Overall, the results
presented in Model 10 support H1, H2c, and H3a. These results suggest that a
family’s attitude to PE in general, the family’s intention to exit by selling the
business, and the family’s overall knowledge of PE all have a positive and sig-
nificant influence over the intentions of the family business to use PE for
restructuring ownership of the business.
4.4 Summary of Results
Table 6 presents an overall summary of the hypotheses supported based on the
abovementioned results. Regardless of the intended purpose of PE (growing the
business; restructuring ownership), there is support for H1, H2c, and H3a. Spe-
cifically, a family’s attitude to PE in general, the family’s intention to exit by selling
the business, and the family’s overall knowledge of PE all have a positive and
significant influence over the intentions of the family business to use PE, regard-
less of whether it is for growth or for restructuring ownership of the business.
Table :Summary of results.
Hypothesis Result
H:The intention of family firms to use PE is positively associated with their
general attitude towards PE
Supported
Ha: The intention of family firms to use PE will be negatively associated with their
intention to pass on the business to the next generation of their family
Not
supported
Hb: The intention of family firms to use PE will be negatively associated with their
intention to appoint outside management but retain control
Not
supported
Hc: The intention of family firms to use PE will be positively associated with their
intention to exit by selling the business
Supported
Ha: The intentions of family firms to use PE will be positively associated with their
level of knowledge of PE
Supported
Hb: The intentions of family firms to use PE will be negatively associated with
perceived unfavourable market conditions
Not
supported
Family Firm Intentions to Use Private Equity 25

5 Discussion & Conclusion
Although past research suggests that family firms are less likely to use PE financing
when compared to their non-family counterparts (Scholes, Westhead, and Burrows
2008; Wright and Bruining 2008), they do not explore in-depth the main reasons
for doing so. Our (Poutziouris 2001; Romano, Tanewski, and Smyrnios 2001; Wu,
Chua, and Chrisman 2007) study identifies major underlying causes as to why this
might be the case. Similar to research in PE investment among non-family firms
that found that employees were often fearful of the possible changes by the new
owners or investors (Boselie and Koene 2010), many family firm owners may be
influenced by the negative “war stories”associated with using PE and conse-
quently may develop an antipathy towards using PE. Second, family owners are
more likely to consider using PE financing for growing the business or restruc-
turing ownership of the business when their intended succession strategy involves
relinquishing control of the business (i.e. selling the business sometime in the
future). Finally, family firms with a lower level of understanding of PE, such as
knowing what firm characteristics are attractive to PE investors or how to go about
a PE deal, have lower intentions to use PE. This suggests that a critical reason why
family firms intend to use PE to a lesser extent is due to a knowledge gap.
5.1 Contribution to Theory
The intention to use PE among family firms provides a unique context to study the
decisions to engage in such forms of external investment as alternatives to funding
growth and/or reconfigure the ownership structure. First, our study advances
family business theory in that while there are studies that purport to examine what
is happening in different stages of family firm-PE deal-making, few have really
investigated the issues surrounding the early pre-deal phase, which PE researchers
have generally not focussed on. This study advances our understanding of how the
TPB can be applied to the family business context to further understand attitudes
towards family firms using PE financing.
Second, the research advances our understanding of how the TPB can be
applied to the family business context to further understand attitudes towards
family firms using PE financing. Using the TPB, this study highlights that a family’s
attitude towards using PE is not homogeneous across family firms but is influenced
by three factors: their attitude to PE in general, succession intentions and their
knowledge of PE. When family norms dictate that family control takes pre-
eminence in future succession strategies, family business leaders are less likely to
26 C. Graves et al.

view PE favourably because of the concerns over loss of control. However, when
such family norms are relaxed, where family control is no longer paramount,
family firms are more likely to contemplate using PE. However, the family’s
knowledge of PE also influences intentions to use PE. This is because it is expected
to influence their perceptions and ability to pursue PE deals, which is consistent
with previous studies that found that the knowledge gap is a barrier for family
firms to consider using PE.
Finally, we explicitly focus on the demand-side aspects of PE investments
instead of supply-side elements, which have been widely investigated in previous
PE research (Seghers, Manigart, and Vanacker 2012). By taking this perspective, we
answer Michiels and Molly’s (2017) call to clearly distinguish between demand-
side and supply-side factors when examining family business financing decisions.
5.2 Contributions to Practice
The implications of the findings from this study are as follows. Firstly, a family
owner’s attitude towards PE, the subjective norms underlying their intended
succession strategies, and their knowledge of PE will significantly influence their
intentions to use PE financing. There may be a large cultural mismatch between PE
funds and family firms. Unless these issues are addressed from the family firm
owner’s perspective, this will prevent most of them from transacting with PE in-
vestors (Thiele, Busse, and Prigge 2018). Family firms who start negotiations and
eventually sign contracts with PE are generally optimistic that the deal between PE
and family firms could be successful. This outcome could be driven by a positive
attitude towards PE, a more open understanding of succession norms or a suffi-
cient understanding of the PE investment process.
Secondly, PE financing may provide a viable alternative for family owners
intending to exit the business because family succession is not viable or desirable.
In essence, there is the potential for PE to provide a solution to the upcoming
succession crisis (see for example Waters 2013) where the current generation of
owners will increasingly seek to retire and exit as owners.
Finally, policymakers and advisors should be encouraged to educate owners
about PE financing. As the results suggest, owners are considerably more likely to
consider using PE financing if they have a better understanding of what PE is, how
it can benefit their business and how to initiate and structure a PE deal. Such
education may also address misinformed attitudes regarding PE, such as being
“vulture capital”instead of legitimate and fruitful strategies for financing growth
or restructuring/pruning the family ownership tree where buying out existing
family owners with family wealth is not a viable option. While previous research
Family Firm Intentions to Use Private Equity 27

has looked at PE trying to understand the complexities of the family and the family
firm (Michel et al. 2020), our research shows that if the family firm wants to
consider PE and negotiate from a position of strength, it is just as important that the
family firm owner(s) do their homework to understand the complexities of the PE
investment sector and process (Schickinger, Leitterstorf, and Kammerlander 2018).
5.3 Limitations and Future Research
Regarding limitations, as this study was restricted to Australian firms, it is not
known to what extent the findings are generalisable to other countries and
therefore is an area for future research. Secondly, we have followed the central idea
of the TPB in that any behaviour is determined by behavioural intentions, which
are a function of three independent constructs: attitude, subjective norms, and
perceived behavioural control –i.e. the study has been conducted within an
additive framework. However, there is evidence in other domains that these social
cognitive constructs likely interact (Castanier, Deroche, and Woodman 2013; Eagly
and Chaiken 1993; McMillan and Conner 2003; Umeh and Patel 2004; Yzer 2007),
and these should be tested in future research. Thirdly, this study used cross-
sectional data; therefore, it was impossible to ascertain how independent and
control variables influence attitudes and behaviour over time. Consequently,
future research could include longitudinal research designs to examine the in-
fluence of attitudes, subjective norms and perceived behavioural controls on in-
tentions to use PE over a period of time and whether these intentions result in
changes in the use of PE by family firms. Finally, we have limited our study to
family businesses to further understand why they may be reluctant to use PE,
which has been well-established in the literature. Future research should be
encouraged to examine whether TPB is useful for understanding the use of PE by
non-family businesses and how components of TPB, such as perceived behav-
ioural control in accessing PE differ between family and non-family firms.
6 Conclusions
In line with patterns of non-family firms using PE to initiate and sustain entre-
preneurial management, the results of this study help extend our understanding of
the influences on family firm owners’intentions to use PE for two distinct roles,
namely, (1) for growth and (2) to restructure the current ownership configuration. It
also shows how Ajzen’s (1991) TPB can be applied to a family business context to
explain determinants of the intentions of family owners to use PE financing.
28 C. Graves et al.

Additionally, the study’sfindings emphasise the importance of educating owners
on PE financing to foster more positive intentions to use such finance. Finally, by
focussing on demand-side factors for PE investments instead of supply-side, which
have been widely investigated in previous PE research, we also respond to a recent
call by Michiels and Molly (2017) to clearly distinguish between demand-side and
supply-side factors when examining family firm financing decisions.
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