Do family firms perform better under financial constraints? Financial constraints, family firms and performance

We investigate whether financial constraints impair the performance of SMEs and possibly lead to firm failure. More importantly, we address the question of whether family SMEs fare better in terms of performance and survival when operating under financial constraints. We draw on data covering 2,475,210 firm‐year observations from 458,025 firms and use a recently developed financial constraint measure, ASCL (age, size, cash flow and leverage). We find that financial constraints decrease performance and increase the hazard of failure. However, family firms improve their performance and lower the hazard of failure under increasing financial constraints. These findings have implications for understanding the worth of family firms in improving performance under financial constraints.