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Do board characteristics play a moderating role in M&A decisions of family firms?

Mehul Raithatha (Indian Institute of Management Indore, Indore, India)
Radha Ladkani (Indian Institute of Management Indore, Indore, India)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 2 March 2022

Issue publication date: 5 December 2023

635

Abstract

Purpose

The purpose of this paper is to examine the moderating effect of the board of directors on the strategic decisions made by family firms, and to understand the board attributes that can alleviate the aversion of family-owned firms toward mergers and acquisitions (M&A).

Design/methodology/approach

The study uses a sample of several firms listed in India from 2006 to 2019 with 19,813 firm-year observations. The empirical tests have been performed using logistic and negative binomial regressions. The study also tests for endogeneity with the help of Heckman (1979) two-step treatment effects model.

Findings

The study shows that board characteristics like smaller board-size, presence of outside directors, lower intensity of board activity, presence of busier board members and separation of board chair and CEO positions alleviate the inhibition of family firms toward M&A.

Research limitations/implications

The findings imply that investors and policymakers can encourage family firms to have smaller boards, more independent directors, passive boards and CEO nonduality to reduce their aversion toward risky activities. Family-owned firms could consider a board comprising members with multiple directorships who can bring wider knowledge and expertise which can reduce the perceived threat to socioemotional wealth (SEW) and alleviate their aversion toward M&A.

Originality/value

Ownership concentration in family firms posits a unique challenge in terms of their aversion toward M&A. This study is one of the few that highlight the relevance of the monitoring and advisory role of the board in alleviating this aversion in an emerging market like India.

Keywords

Citation

Raithatha, M. and Ladkani, R. (2023), "Do board characteristics play a moderating role in M&A decisions of family firms?", International Journal of Emerging Markets, Vol. 18 No. 11, pp. 5257-5279. https://doi.org/10.1108/IJOEM-07-2021-1068

Publisher

:

Emerald Publishing Limited

Copyright © 2022, Emerald Publishing Limited

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