Family Firms and the Choice Between Wholly Owned Subsidiaries and Joint Ventures

[We’re pleased to welcome authors Maria Cristina Sestu of the University of Pavia and Antonio Majocchi of the University of Pavia. They recently published an article in Entrepreneurship Theory and Practice entitled “Family Firms and the Choice Between Wholly Owned Subsidiaries and Joint Ventures: A Transaction Costs Perspective,” which is currently free to read for a limited time. Below, They briefly describe the motivation and impact of their research.

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What motivated you to pursue this research?

Recent entry mode research has largely ignored the ownership characteristics of the MNCs. We investigate the entry mode decisions of family and non-family firms and explore the role of family involvement on both the MNC side and the local partner side. We contend that the mixed results produced to date are a consequence of a lack of attention to family or non-family involvement on both sides in general and on the local firm side in particular. In the paper, we address why and how family involvement affects entry strategy.

Were there any specific external events—political, social, or economic—that influenced your decision to pursue this research?

Recent official data show that the value of cross border M&A and partial acquisitions deals in Italy reached a new high making the Italian companies the most targeted by foreign acquisitions in the EU along with France and just after the UK. A number of these acquisitions by family and non-family MNCs targeted iconic brands owned by family firms such as Loro Piana, Valentino, Pomellato and Krizia. Commenting the acquisitions on the news the managers involved on the deals often highlight the relevance of being a family firm. This suggests us that the family nature of both the target and the investing companies were still an underdeveloped issue in the management literature and convince us to further investigate the topic.

In what ways is your research innovative, and how do you think it will impact the field?

The intuition that studying the differences between the entry mode policies of family and non-family firms was a promising field of research proved right. We show that whether the investor and target are a family firm or not has an impact on the entry mode choice as family control is relevant on both sides of the transaction. We prove that future research in the field would be more fruitful if corporate governance characteristics were taken into account. We also show that family involvement generates some firm specific asset that affects family firm policies. In this way we contribute to the development of the theory of family firms.

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