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In this paper we study how access to bank lending during the recent financial crisis differed between family and non-family firms. Our theoretical prediction is that the presence of a family block-holder in the company attenuated the agency conflict in the borrower-lender relation, because of the higher non-monetary cost of default entailed in this type of corporate ownership structure. Because this information is to a large extent soft, we further investigate the interaction between the family firm status and the screening technology adopted by banks. Using highly detailed data referred to Italy, we exploit the change in the credit allocation following Lehman Brothers’ bankruptcy. We find that family firms experienced a contraction in granted credit lower than non-family firms. Results are robust to ex-ante differences between the two types of firms and to bank-specific shocks. In line with our prior, banks that increased the role of soft information in their lending practices reallocated credit towards family firms.

The purpose of this paper is to study how family firms, compared to widely-held companies, reacted to the 2008 economic crisis in terms of employment adjustments. By using a difference-in-difference approach, we provide empirical evidence that di- vergent paths of adjustment between family and non-family firms exist, with family firms systematically preferring to safeguard workplaces close to the firm's headquarters, compared to other plants. We offer a new theoretical framework consistent with these findings, that we define the social recognition motive, based on the psychological rela- tion linking the family owner with his community of reference. We investigate possible alternative explanations for the results, most of whom can be ruled out in our setting. Finally, we test more directly for the validity of the social recognition theory, finding encouraging results in line with the predictions.