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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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    6. 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.
    7. Oren Rigbi & Itai Ater, 2018. "Unchain My Chain: The Impact Of Founding Couples On Family Businesses," Working Papers 1806, Ben-Gurion University of the Negev, Department of Economics.
    8. Nguyen, Pascal & Rahman, Nahid & Zhao, Ruoyun, 2013. "Ownership structure and divestiture decisions: Evidence from Australian firms," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 170-181.
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