Socioemotional Wealth, Family Control, and the Choice of Business Exit

We’re pleased to welcome authors Francesco Chirico of Jönköping University and Tecnológico de Monterrey, Luis R. Gómez-Mejia of Arizona State University, Karin Hellerstedt of Jönköping University, Michael Withers of Texas A&M University, and Mattias Nordqvist of Jönköping University. They recently published an article in the Journal of Management entitled “To Merge, Sell, or Liquidate? Socioemotional Wealth, Family Control, and the Choice of Business Exit,” which is currently free to read for a limited time. Below, they briefly discuss the significance of this research.]

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Our study provides evidence that family firms exit less than nonfamily firms and tend to endure increased financial distress to avoid losses in the affect-related value embedded in the family firm. Furthermore, when forced to exit, family firms prefer to do so via mergers, liquidation and sale (in that order) while nonfamily firms prefer to exit via sale, liquidation and mergers (in that order). We argue that these different exit behaviors are attributed to family owners’ desire to maintain some of the family legacy (as in mergers) while avoiding losses of family identity (as in a sale). Especially in distressed situations, considering business exit as a way to free up resources for the strategic regeneration of a firm is fundamental. Business exit, for instance in terms of a merger, should be viewed as a way to identify and evaluate new opportunities for owners. Firms—especially family firms—need to balance socioemotional and economic perspectives; otherwise, even when the need for exit is recognized, it may not occur.

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