AFFI (Association Française de Finance): 'Ethics and Governance' location:Bordeaux date:27-29 June 2007
Family ownership is prevalent in all economies around the world and has a significant impact on the companies under control. This paper examines how families influence the decision to retain or liquidate a subsidiary. In the literature, several motivations have been brought forward already why management would voluntarily restructure including the desire to focus, the presence of financial constraints or the lack of managerial capabilities. Using a unique dataset on Belgian subsidiaries, these hypotheses and the impact of family ownership are investigated. The results confirm that when subsidiaries perform badly or when synergies with the rest of the group are lacking, management will decide to hold them no longer under control. Consistent with the argument that families are motivated and able to manage the firm better, I find that family owned firms are more likely to restructure. This is certainly so for family firms where the family holds a large block of shares or in family firms where the founder is still present. The choice between divesting or liquidating a subsidiary is mainly determined by both industry and firm characteristics.