Three essays on family businesses
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Date
2021
Authors
Haider, Zulfiquer Ali
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Abstract
In this dissertation, I look at three strategic processes within one of the most prevalent business forms in the world – family firms. In chapter 2, I look at the acquisition process, particularly focusing on deal structure. My findings, supported by data from S&P 500 firms during the period 2003-2014, show that when family firms engage in equity-based transactions, their valuation of the target is affected negatively due to the additional risk of losing. I also find that international acquisitions are more attractive to family firms due to benefits of risk diversification and loose-coupling, thereby increasing deal valuation. Moreover, family firms are willing to pay more to acquire targets operating under better public governance as they perceive lower reputational risk in associating with them. Post-hoc analyses reveal descendant board chairs show a stronger preference for targets with better public governance and ones that are located cross-border. In chapter 3, I look at board processes, focusing on how decisions made by the board of directors in family firms are more likely to be colored by groupthink. Using a sample of firms from the S&P 500, I find that institutional investors, discouraged by groupthink in family firms, invest less in them. However, appropriate corporate governance in the form of greater board diversity, lower director tenure, busier boards, more financial disclosure and bigger shareholder voice can help in alleviating these concerns. I also explore the heterogeneity in family firms that have different generations of family members on board and find that groupthink is likely to be higher in them, but the presence of independent directors can be an alleviating factor. In chapter 4, I look at the long-term decision-making process in family firms. My findings, based on an international sample of listed firms from 2007-2018, show that while family firms may have more long-term oriented values which make them less sensitive to time delays, contextual factors such as economic and non-economic performance hazard and whether the decision-making is controlled by founder or descendant, will influence the expectancy and value of future utilities, thereby moderating the positive impact of long-term oriented values on long-term decision-making.
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Keywords
Entrepreneurship, Groupthink, Long-term decision-making, Family business, Corporate governance, Mergers and acquisitions, Institutional investment, Temporal motivation theory, Socioemotional wealth, Agency theory
Citation
Haider, Z. A., Li, J., Wang, Y., & Wu, Z. (2021). Do family firms have higher or lower deal valuations? A contextual analysis. Entrepreneurship Theory and Practice, 45(4), 709-739.