Nearby or faraway? Determinants of target selection in family firm acquisitions

Abstract

We posit that, beyond the distinction between domestic and cross-border deals, family ownership configurations and board ownership determine whether family firms (FFs) prefer targets from closer or more distant markets, thus highlighting the crucial role of geographical distance when conducting acquisitions abroad. We further investigate whether target selection depends on firm performance relative to its aspirations. To test our hypotheses, we gather a comprehensive sample of 7297 acquisition deals, of which 3180 are cross-border transactions, undertaken by family and non-FFs from 30 European countries during the 2007–2015 period, with target firms located in 65 different countries. Our empirical strategy allows us to analyze FFs’ preference in terms of geographical distance when they decide to acquire a foreign company. The main findings suggest that FFs acquire targets from closer locations when there is a group of minority family shareholders or a higher level of board ownership. Meanwhile, FFs performing below their aspirations acquire more distant targets compared to other FFs. Our findings contribute to international business (IB) research by demonstrating that the distinction between domestic and foreign targets is not enough when investigating acquisitions, but the distance to the target firm is vital for a better understanding of cross-border deals.