The role of information asymmetry in the choice of entrepreneurial exit routes

Abstract

Our quantitative study investigates the determinants of internal versus external exit routes in family firms. Building on information asymmetry theory, we examine how an owner's inferior knowledge about the abilities of potential external entrants (in contrast to family internal successors) renders a family internal transfer more likely. This information asymmetry, however, can be mitigated by activities such as owners' screening and transfer candidates' signaling efforts to reveal the candidates' abilities. Our data exhibits a positive effect of signaling and an inverted U-shaped effect of screening on the probability of external exit routes. Firm age, as a driver of emotional attachment, weakens these effects.

Digital Technology Entrepreneurship: A Definition and Research Agenda

“…These motivations can reflect a combination of multiple entrepreneurial identities or a specific dominant identity (Fauchart & Gruber, 2011). The social identity of the entrepreneur behind each of these firms has implications for the goals they set, as well as for the exit routes that they might be able to define (Dehlen et al, 2014). However, digital entrepreneurs expect to be able to sell their firms to a larger player, resulting in the effective transfer of their user base to a new firm.…”

After the harvest: A stewardship perspective on entrepreneurship and philanthropy

“…However, with only a few exceptions (e.g., Bahrami and Evans, 1995;Mason and Harrison, 2006), scholars have largely focused on the actions occurring before exit or harvest, such as the motivations (Justo et al, 2015), routes (Dehlen et al, 2014), and strategies to achieve exit. Our research explores new ground by exploring what happens after harvest.…”

Trusted advisors in a family business's succession-planning process—An agency perspective

“…On the one hand the incumbent is expected to possess much deeper knowledge about the firm, its performance, strengths and weaknesses than the successor. On the other hand the successor has superior knowledge about his or her own abilities and about the plans he or she has with the business post-succession (Dehlen et al, 2014).…”

“…Further typical controversial subjects in this regard are again the preferred time schedules, but also the perceived fair sales price (if applicable), and the desired level of post-succession strategic change. To strengthen their own positions during negotiations, each actor is incentivized to hide information-e.g., facts about the firm's value or postsuccession plans-from each other (Dehlen et al, 2014), which ultimately leads to an asymmetric distribution of information and to severe conflicts among the involved principals.…”

“…In particular, trusted advisors can improve the efficacy of the succession process by mentoring both incumbents and successors, providing new insights on the succession (Salvato & Corbetta, 2013), or acting as agents to bring different opinions together and achieve compromise solutions (Lane, Astrachan, Keyt, & McMillan, 2006;Thomas, 2002). However, trusted advisors are also associated with possible costs and drawbacks, stemming from agency costs, particularly those costs that result from divergent goals (e.g., Chrisman, Chua, & Sharma, 2004a, 2004b and informational asymmetries (e.g., Dehlen, Zellweger, Kammerlander, & Halter, 2014) between the incumbent, the successor, and the advisor. Those drawbacks include heavy pressure on incumbents (Hilburt- Davis & Senturia, 1995), an overly task-oriented approach that neglects involved parties' emotions (Goodman, 1998;Kaye, 1996), and narrow coaching that results in a reduction in the independence of successors' actions and decisions (Lane, 1989).…”