Target Capital Structure and Financial Risk in Family Firms

Abstracts: Family businesses build up a large proportion of businesses in Poland and also all around the world. Family businesses are considered to be a special type of business entities. They have unique characteristics that may represent one side of their competitive advantage and, secondly, that exhibit a factor harmful to their development. This is mainly due to the role of the owner and his family in the process of business management. Characteristics of family businesses in various stages of development are the strength and the source of their success or weakness and cause failure.

Modelling the target capital structure in family businesses is related to the risk of financing sources. The risk of a source of financing is the probability of a company losing its ability to service its debt as a result of the adverse impact of the environment. This paper describes the identification, measurement and risk management of sources of funding in family businesses. Constant changes in the markets in particular financial force the enterprise to formulate its own risk policy concept and thus develop a logical set of behaviors that take the form of a decision-making process, called the risk management process. The paper presents the author’s methodology of risk management in family businesses.

Key words: capital structure, debt ratio, financial risk, financing