Family Firm Mergers and Acquisitions in Different Legal Environments

Abstract

This study analyses family versus nonfamily firm returns under different legal environments when a merger and acquisition (M&A) is announced. The database includes 124 M&As of European-listed firms (15 countries), with acquired firms being worldwide public or private firms (23 countries), over the 2002 to 2004 period. The findings show that family ownership has a positive and significant influence on acquiring shareholder M&A valuation. However, a major shareholder ownership of 32% has a negative effect. The authors also observe that a weaker legal and institutional environment in the target country has a positive influence on acquiring shareholder valuation.

Takeovers and (Excess) CEO Compensation

“…We also observe that the bidder returns are higher when the ultimate shareholder has high levels of ownership concentration and it is a family or a company, which indicates that the ownership concentration has a managerial control effect on the acquiring firms. The positive effect of family firms on the acquiring shareholder valuation is consistent with the result found by Feito-Ruiz and Menendez-Requejo (2010). All other results from the main model presented in Table 7 are upheld.…”

Constrictive vs. distinctive familiness and the culturing of familiness capital (FamCap)

“…However, if the familiness character is misused for short-term personal advantage, it could lead to negative outcomes and constrictive familiness (Klein, 2008). Constrictive familiness arises from elements such as nepotism, opportunistic decisions and unfavorable selections (Feito-Ruiz and Menéndez-Requejo, 2010). Constrictive familiness is also a symptom of low energy levels in a firm.…”

“…Low energy is characterized by symptoms such as apathy, inflexibility and inertia (Bruch and Ghoshal, 2003). Conversely, positive familiness is characterized by selfless dedication and the long-term investment perspectives of family businesses (Feito-Ruiz and Menéndez-Requejo, 2010). …”

Measures of Value in Acquisitions: Family Versus Nonfamily Firms

“…First, given that acquisitions are an important part of the business process of redeploying resources into more productive uses, more research should be directed to how family firm' resources can be effectively integrated into the acquiring company, and whether the process may be facilitated when the acquirer is also a family firm (Feito-Ruiz & Menéndez-Requejo, 2010;Miller, Le Breton-Miller & Lester, 2010). Recent studies argue that within an inter-firm cooperation, when both parties involved are family firms, similarity in the family status provides a contextual understanding (Chirico, Ireland & Sirmon, 2010).…”

“…Harrison et al, 1991), and although family firms are the most common form of organizations throughout the world, accounting for over 75% of all registered companies in most economies (Miller, Steier & Le Breton-Miller, 2003), only few recent studies have focused on family firms' acquisitions (e.g. Feito-Ruiz & Menéndez-Requejo, 2010;Holmen & Nivorozhkin, 2007;Mickelson & Worley, 2003;Steen & Welch, 2006). A family firm is here defined as an organization in which a family has a substantial ownership stake, and has at least two of its members in key management positions (see Miller, Le Breton-Miller, Lester & Cannella, 2007;Westhead & Cowling, 1998).…”