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Family firms and the divestment decision: An agency perspective

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  • Praet, Alain

Abstract

This article examines how ownership, management and governance characteristics and the associated agency problems of family firms impact the divestment decision. Based on the divestment activity of 48 listed family firms in Belgium over a six-year period, I find an inverse U-shaped relationship between family ownership and divestment likelihood, supporting the alignment view at medium levels of family ownership but entrenchment at high ownership levels. In addition to ownership, the governance of the family firm also impacts the divestment decision. Divestiture likelihood is significantly lower when the family exerts its influence through the board of directors, consistent with the entrenchment view that they will use their influence to pursue non-economic goals. Founders, on the other hand, act as active monitors of the firm's activities and do not seem to be hindered by emotional considerations which result in more divestment activity as compared to other family firms.

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  • Praet, Alain, 2013. "Family firms and the divestment decision: An agency perspective," Journal of Family Business Strategy, Elsevier, vol. 4(1), pages 34-41.
    • Handle: RePEc:eee:fambus:v:4:y:2013:i:1:p:34-41
    DOI: 10.1016/j.jfbs.2012.12.002
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    3. Alexandra Bertschi-Michel & Philipp Sieger & Thomas Wittig & Andreas Hack, 2023. "Sacrifice, Protect, and Hope for the Best: Family Ownership, Turnaround Moves, and Crisis Survival," Entrepreneurship Theory and Practice, , vol. 47(4), pages 1132-1168, July.
    4. Basco, Rodrigo & Hair, Joseph F. & Ringle, Christian M. & Sarstedt, Marko, 2022. "Advancing family business research through modeling nonlinear relationships: Comparing PLS-SEM and multiple regression," Journal of Family Business Strategy, Elsevier, vol. 13(3).
    5. Brown, T. & Panibratov, A., 2016. "Foreign divestment decisions: A theoretical framework," Working Papers 6450, Graduate School of Management, St. Petersburg State University.
    6. Sund, Lars-Göran & Melin, Leif & Haag, Kajsa, 2015. "Intergenerational ownership succession," Journal of Family Business Strategy, Elsevier, vol. 6(3), pages 166-177.
    7. Barros, Ismael & Hernangómez, Juan & Martin-Cruz, Natalia, 2016. "A theoretical model of strategic management of family firms. A dynamic capabilities approach," Journal of Family Business Strategy, Elsevier, vol. 7(3), pages 149-159.
    8. Laffranchini, Giacomo & Hadjimarcou, John & Kim, Si Hyun, 2022. "The first turnaround response of family firms in a crisis situation," Journal of Family Business Strategy, Elsevier, vol. 13(1).
    9. Florian Kreer & René Mauer & Steffen Strese & Malte Brettel, 2018. "On private equity exits of family firms in the German Mittelstand," Journal of Business Economics, Springer, vol. 88(3), pages 503-529, May.
    10. Coudounaris, Dafnis N. & Orero-Blat, María & Rodríguez-García, María, 2020. "Three decades of subsidiary exits: Parent firm financial performance and moderators," Journal of Business Research, Elsevier, vol. 110(C), pages 408-422.
    11. Emilie R. Feldman & Raphael(Raffi) Amit & Belén Villalonga, 2016. "Corporate divestitures and family control," Strategic Management Journal, Wiley Blackwell, vol. 37(3), pages 429-446, March.
    12. Carmen Gallucci & Rosalia Santulli & Michela De Rosa, 2017. "Finance in Family Business Studies: A Systematic Literature Review," International Journal of Business Administration, International Journal of Business Administration, Sciedu Press, vol. 8(5), pages 11-27, July.

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