The Socioemotional Wealth – Pecking Order Approach: Empirical Evidence in Emerging Markets

Abstract

"Drawing on the Socioemotional Wealth Concept, the Behavioral Agency Model, and the Pecking Order Theory, we examine the behavior of family firms in their financing decisions and the role of the business risk and performance hazard using the BAM – the mixed gamble – that allows to examine the SEW trade-offs that the issuance of external equity represents for family firms and how this differentiates financing decisions between family firms and non-family firms. Using a sample of publicly traded firms in three emerging economies (Peru, Chile, and Colombia), our findings indicate that family firms exhibit not only a strong pecking order behavior but also a greater pecking order behavior than non-family firms do in their financing decisions, following The Socioemotional Wealth – Pecking Order Proposal. Likewise, our findings indicate that in general the business risk and performance hazard attenuate the pecking order behavior in family firms more than they do in non-family firms. Finally, we suggest a theoretical proposal that shed additional light on why family firms would follow the pecking order in their financing decisions, combining the pecking order theory (classical financing theory) and The Socioemotional wealth approach (family business conceptual framework)."