Family firms, acquisitions, and divestitures

This dissertation examines whether family firms are different from non-family firms when facing major decisions such as acquisitions and divestitures. Family firms are defined as companies where the founder or a member of his/her family, by either blood or marriage, is an officer or a director, and at the same time, the whole founding family owns at least 5% of cash flow ownership. The first part of this dissertation examines the difference between family firms and non-family firms in both the acquisition performance and the propensity to attempt acquisitions. The acquisition announcement abnormal returns of S&P 500 firms (as of December 1994) from year 1994 to 2005 show that family firms perform better than non-family firms. More specifically, family firms with a family CEO perform significantly better than non-family firms. This better performance can not be explained by the bidder financial, target, and deal characteristics documented in the previous literature. Family firms with a non-family CEO and a family Chairman also perform better than non-family firms during acquisitions. In contrast, family firms with a non-family CEO and a non-family Chairman do not perform better than non-family firms. These findings suggest that founding family ownership and founding family management/monitoring are complementary in deciding the firm acquisition performance. When the propensity to attempt acquisitions is examined, family firms show a lower propensity to attempt acquisitions than non-family firms. More specifically, family firms with a family CEO have a significantly lower propensity to attempt acquisitions than non-family firms. Family firms with a non-family CEO and a family Chairman as well as family firms with a non-family CEO and a non-family Chairman do not have a significantly different propensity from non-family firms. The second part of this dissertation examines the difference between family firms and non-family firms in both the divestiture performance and the propensity to attempt divestitures. The examined divestitures include the asset sell-offs, spin-offs, and equity carve-outs of S&P 500 firms (as of December 1994) from year 1994 to 2005. For all the divestitures (including all the deals with both family firms and non-family firms as parents), there are significantly positive announcement abnormal returns. When two-digit Standard Industrial Classification (SIC) code dummies are controlled for, family firms experience higher announcement abnormal returns than non-family firms. However, when the two-digit SIC code dummies are not controlled for, the difference in abnormal returns is no longer statistically significant. Similarly, when the two-digit SIC code dummies are controlled for, both family firms with a family CEO and family firms with a non-family CEO and a family Chairman experience higher abnormal returns than non-family firms. Again, the higher abnormal returns associated with the family CEO/Chairman are no longer statistically significant when the two-digit SIC code dummies are not controlled for. When the propensity to attempt divestitures is examined, family firms have no different propensity from non-family firms.