Considerations on the use of financial ratios in the study of family businesses

TL;DR

This paper examines how different analytical methods affect the interpretation of financial ratios in family businesses, emphasizing the importance of suitable methodologies for accurate research conclusions.

Contribution

It introduces the use of compositional data analysis (CoDa) to study financial ratios in family businesses, highlighting methodological sensitivity in such analyses.

Findings

Financial ratio analysis is sensitive to methodology used.

CoDa provides a different perspective on balance sheet liabilities.

Methodological choices significantly impact research outcomes.

Abstract

Most empirical works that study the financing decisions of family businesses use financial ratios. These data present asymmetry, non-normality, non-linearity and even dependence on the results of the choice of which accounting figure goes to the numerator and denominator of the ratio. This article uses compositional data analysis (CoDa) as well as classical analysis strategies to compare the structure of balance sheet liabilities between family and non-family businesses, showing the sensitivity of the results to the methodology used. The results prove the need to use appropriate methodologies to advance the academic discipline.