Risk containment and Balance in Family firms´ Acquisitions

Family firms undertake fewer acquisitions than nonfamily firms because these transactions threaten their socioemotional wealth (SEW). Acquisitions are thus potential value creating opportunities that family firms forgo to preserve their SEW. Yet, we do not know whether the prioritization of SEW over economic wealth affects the acquisition behavior of the family firms that do decide to acquire. To fill this gap, we craft a theory of family firms´ acquisition behavior that builds on both economic and SEW considerations. We argue that family firms’ limit their exposure to the risk that economic gains from acquisitions will not realize and balance such risk with the risk that acquisitions cause SEW costs. Consistently with our theory, we find that family firms avoid undertaking acquisitions in poorly developed institutional environments where the outcomes of economic transactions are more uncertain. We also find that, in these contexts, family firms are more likely to undertake related acquisitions, which imply smaller threats to their SEW relative to unrelated acquisitions. Conversely, family firms acquire unrelated targets when economic risks are lower, i.e. when the deal is domestic and when host institutions are similar to the institutions of their home country.