Ownership Structure and Mergers and Acquisitions Decisions: Do Family Firms Acquire Differently?

Abstract

This study investigates the relationship between ownership structure and mergers and acquisitions (M&A) decisions for a comprehensive sample of 195 companies listed on the Swiss Exchange for the period 2003-2013. It examines: whether different ownership structures influence the probability of engaging in M&A, whether different ownership structures influence the characteristics of M&A deals, and the value assigned to such operations surrounding the announcement date. This paper focuses on family firms and analyzes the association between several characteristics (generation, involvement in the management, and the presence of just one family member as shareholder) and the M&A.

The results show that family firms engage less in M&A and prefer cash deals and diversified deals. This result is driven mainly by family firms whose power is the least contested. Moreover, family firms at the descendant stage care more about diversification than those at the founder stage. Family firms have a nonlinear (convex) association with value creation when it comes to M&A and only those with significant family ownership generate higher abnormal returns. However, investment decisions made by some types of family firms (i.e. those with several members or those not involved in management) are negatively perceived by market participants.

Keywords: mergers and acquisitions, value creation, ownership structure, family firms, widely held firms, generation, active family, lone member

JEL Classification: G14, G32, G34