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Using the pecking order hypothesis to financing and with reference to non-economic objectives of business families,...

Using the pecking order hypothesis to financing and with reference to non-economic objectives of business families, EXPLAIN WHY family firms face self-imposed restrictions to the sources of finance available to them to grow the firm.

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Pecking order hypothesis is advocating that the company should always be using the internal sources of financing and it will have the least cost of capital so it should not try not to borrow debt capital or it should not try to do equity financing, because it will be having negative impact on the company as debt financing will lead to fixed cost charges and equity finance related to dilution of control in its overall stake.

family farms will always face self-imposed restriction to the source of finance available to them to grow because they are the wealth of the family and they do not want to risk the wealth of the family into the whole business because losing of which could have serious repercussions and hence they will always want to borrow the capital and then take the required risk but they do not want to take the risk of their own wealth of the family.

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