Family Control and Family Firm Valuation by Family CEOs: The Importance of Intentions for Transgenerational Control

Abstract

F amily firms are thought to pursue nonfinancial goals that provide socioemotional wealth, but socioemotional wealth is feasible only with family control of the firm. Using prospect theory, we hypothesize that socioemotional wealth increases with the extent of current control, duration of control, and intentions for transgenerational control, thus adding to the price at which owners would be willing to sell their firms to nonfamily buyers. Findings from two countries show that current control has no impact, and duration of control has a mixed impact. However, intention for transgenerational control has a consistently positive impact on the perceived acceptable selling price.

Psychological contract and social exchange in family firms

“…This response rate is consistent with recent research on family firms (Chrisman, Chua and Kellermanns, 2009;Zellweger et al, 2012). In cases where more than one family member from the same firm responded to the questionnaire, one response was picked at random to avoid confounding results with multiple responses from the same firm.…”

“…This study defines a family firm as one in which there is shared vision among a dominant family coalition, an intention to pursue this vision, and the intention for transgenerational control (Chrisman et al, 2007a;Zellweger et al, 2012). The components of this definition each contribute to the unique social exchange relationship and psychological contract held by family-member employees.…”

“…In contrast, relational obligations are comprised of socioemotional aspects that are instrumental in establishing long-term relationships but are also more nebulous (Cavanaugh and Noe, 1999). The psychological contract extends social exchange theory by examining this exchange phenomenon in an organisational setting (Morrison and Robinson, 1997;Sturges et al, 2005), and the examination of these concepts in family firms adds an additional level of complexity due to the long-standing relationships between members (Zellweger et al, 2012) and the inherent embeddedness of family-member employees within a family firm (Khanin, Turel and Mahto, 2012).…”

Socioemotional Wealth and Firms’ Control: Evidence from Malaysian Chinese Owned Companies

“…In other words, control over the firm is the pivotal point for Malaysian Chinese owner-managed fi rm s to protect their socioemotional wealth. Similar arguments can be detected in recent empirical studies that show that family owners incorporate emotional values into their control over their firms (Zellweger et al 2012;Gómez-Mejía et al 2007). For instance, Gómez-Mejía et al (2007) investigated family choices about control in 1237 Spanish family firms with olive oil mills for a 53-year sample period.…”

Incumbent Decisions about Succession Transitions in Family Firms: A Conceptual Model

“…The work on transgenerational intent [11,12] (i.e., the desire of organizational leaders to hand over control of the firm to their children) and transgenerational control intentions [13] (i.e., intention to transfer the control of the business to the next generation) also suggests that the succession process begins with a decision-making event in which owners consider the benefits and costs of transferring management and control of the business to family and non-family successors. Finally, DeTienne and Chirico [14] recently present a conceptual model to explain how socioemotional wealth (SEW; i.e., the 1 Incumbents in our paper represents an individual who currently holds the management leadership position in a family firm, has majority of ownership in a business or represents those who have majority ownership in the family firm.…”