The role of family influence in M&A transactions

Family-affiliated firm owners are hypothesized to be investors with usually poorly diversified portfolios, often control senior management positions, and may be driven by non-pecuniary benefits. These characteristics have been associated with increased agency cost, based on an inherent conflict of interest between minority shareholders and blockholding families. On the other hand, recent publications as well as capital market indices (e. g., the German Entrepreneurial Index – GEX) suggest that family businesses outperform their non-family peers. The question of whether family businesses act in the best interest of all shareholders is still debated. In light of the currently heated family business (out-)performance discussion and the lack of consensus in the literature, the objective of this dissertation is to clarify whether agency conflicts in family businesses represent a significant problem, or whether family influence in the firm is a competitive advantage for all shareholders. The dissertation chooses Merger & Acquisition (M& A) transactions of public German family and non-family firms as an ideal setting to analyze these value effects. Findings suggest that stronger family influence in a firm does not magnify inefficiencies (e. g., expressed in the form of agency cost between minority and majority shareholders). Overall, family firms display a shareholder value-maximizing behavior. Results indicate that family businesses exhibit pattern and performance advantages over non-family businesses when engaging in (external) growth strategies. The documented outperformance suggests that „familyness“ represents a sustainable competitive advantage.