The impact of information opacity on the relation between founding-family control and cost of debt

The literature finds mixed empirical evidence for systematic relations between founding - family ownership and cost of debt. Using a sample of 3380 privately (non-state) controlled but publicly listed firms in China between 2004 and 2010, we find that, on average, founding-family controlled firms pay significantly lower cost of debt, relative to non-founding-family controlled firms. Further investigation reveals that the negative relation between founding-family control and cost of debt exists mainly in firms that are relatively less opaque. Our results are robust to different measures of cost of debt and information opacity. We further generate evidence that in regions with more developed institutions, information opacity has a less significant impact on the relation between founding-family control and cost of debt. Our study highlights the importance of information opacity in understanding the impact of founding-family control on cost of debt, at least in countries with relatively underdeveloped institutions.