Restructuring in family firms: Balancing family objectives and economic prosperity

Abstract

This study analyzes the extent to which family firms adopt distinct restructuring strategies (employee downsizing, management dismissals, asset retrenchment, dividend cuts) in response to declining performance. We hypothesize that family firms select different restructuring strategies than non-family firms because of the mixed gamble between economic benefits and socioemotional wealth (SEW), and that this difference diminishes as the severity of decline increases. The hypotheses were tested with a sample of 357 decline incidences in 283 German firms between 2005 and 2018 and are largely confirmed; at low decline severity, family firms downsize and retrench less, but this tendency is reversed as the severity increases. They tend to cut dividends more strongly and are less willing to dismiss managers, irrespective of their decline severity.