Psychology

Microeconomics

Divestment

Merge (version control)

Agency cost

Developmental psychology

Economics

Financial distress

Finance

Business

Corporate governance

Management

Financial system

Computer science

Control (management)

Information retrieval

Socioemotional selectivity theory

Shareholder

Journal of Management

We take the perspective that considering the affective motives of dominant owners is essential to understanding business exit. Drawing on a refinement of behavioral agency theory, we argue that family-controlled firms are less likely than non-family-controlled firms to exit and tend to endure increased financial distress to avoid losses to the family’s socioemotional wealth (SEW) embodied in the firm. Yet, when confronted with different exit options and when performance heuristics suggest that exit is unavoidable, family firms are more likely to exit via merger, which we argue saves some SEW, although it is less satisfactory financially. In contrast, nonfamily firms are more likely to exit via sale or dissolution, options that are more prone to offer higher financial returns than mergers. Family and nonfamily firms thus show different orders of exit options. We find support for these arguments in a longitudinal matched sample of privately held firms.

To Merge, Sell, or Liquidate? Socioemotional Wealth, Family Control, and the Choice of Business Exit