To Merge, Sell or Liquidate? Socioemotional Wealth, Family Control, and the Choice of Business Exit

Journal of Management, Forthcoming

52 Pages Posted: 13 Feb 2019

See all articles by Francesco Chirico

Francesco Chirico

Macquarie University, Macquarie Business School; Jonkoping University - Jonkoping International Business School (JIBS)

Luis R. Gomez-Mejia

Arizona State University (ASU) - Management Department

Karin Hellerstedt

Jonkoping University - Jonkoping International Business School (JIBS)

Michael C. Withers

University of Alabama

Mattias Nordqvist

Jonkoping University - Jonkoping International Business School (JIBS); Babson College - Arthur M. Blank Center for Entrepreneurship

Date Written: February 3, 2019

Abstract

We take the perspective that considering the affective motives of dominant owners is essential to understanding business exit. Drawing on a refinement of behavioral agency theory, we argue that family-controlled firms are less likely than non-family-controlled firms to exit and tend to endure increased financial distress to avoid losses to the family’s socioemotional wealth (SEW) embodied in the firm. Yet, when confronted with different exit options and performance heuristics suggest that exit is unavoidable family firms are more likely to exit via merger, which we argue saves some SEW, although it is less satisfactory financially. In contrast, non-family firms are more likely to exit via sale or dissolution, options that are more prone to offer higher financial returns than mergers. Family and non-family firms thus show different orders of exit options. We find support for these arguments in a longitudinal matched sample of privately held firms.

Suggested Citation

Chirico, Francesco and Gomez-Mejia, Luis R. and Hellerstedt, Karin and Withers, Michael C. and Nordqvist, Mattias, To Merge, Sell or Liquidate? Socioemotional Wealth, Family Control, and the Choice of Business Exit (February 3, 2019). Journal of Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3328080

Francesco Chirico (Contact Author)

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Jonkoping University - Jonkoping International Business School (JIBS) ( email )

Jönköping, 55111
Sweden

Luis R. Gomez-Mejia

Arizona State University (ASU) - Management Department ( email )

Tempe, AZ 85287-4006
United States

Karin Hellerstedt

Jonkoping University - Jonkoping International Business School (JIBS) ( email )

Jönköping, 55111
Sweden

Michael C. Withers

University of Alabama ( email )

101 Paul W. Bryant Dr.
Box 870382
Tuscaloosa, AL 35487
United States

Mattias Nordqvist

Jonkoping University - Jonkoping International Business School (JIBS) ( email )

Jönköping, 55111
Sweden

Babson College - Arthur M. Blank Center for Entrepreneurship

231 Forest Street
Babson Park, MA 02457-0310
United States

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