Non-dilution effect and the bankruptcy entrenchment effect of debt were investigated by using a sample of A-share firms during 2001～2004. The empirical test revealed that family controlled firms tend to higher levels of leverage than that of non-family counterparts due to the non-dilution effect of debt. Additional analysis indicated that the relationship between the percentages of ownership and levels of leverage is nonlinear in all family firms. After the sample was split into three sub-samples according to the different percentages of ownership, it was shown that the percentages of ownership are correlated negatively to the leverage factor, and the leverage factor of the privately-owned firms with 20～30% of the ownerships  are higher than that of other family firms. Two effects of debt financing were empirically tested.