Why Family Firms Sell or Do Not Sell Shares to Investors

Abstract

This study extends the research in the field of external succession in family firms. It contributes to the literature by analyzing the drivers of family firm owner managers selling a minority stake to a strategic investor. This type of external succession might be of great interest to family firms because family firm owner managers are able to secure control over the firm and hence preserve socioemotional wealth while simultaneously generating additional financing as well as gaining strategic and managerial knowhow. Likewise, minority investments in family firms might be also of high interest to strategic investors thus enabling close collaborations (e.g., in R&D, purchasing and sales), with minor equity investment. Based on the socioemotional wealth perspective we hypothesize that the degree of family prominence, the degree of employee orientation and a pure family management influence the willingness to sell. In addition, we hypothesize that the moderating effect of a below-average financial performance reverses the influence of the abovementioned direct effects. We test our hypotheses using a vignette study leveraging 327 observations from family firm owner managers.