Family Firms and the Choice of Payment Method in Domestic and International Acquisitions

Abstract

International audienceThis paper investigates the impact of family control on domestic and international acquisition's payment. This effect is important to understand since it will underpin all the future financial flexibility of the merged firms in a context of accelerating international market integration. We find that the percentage of cash payment in acquisitions is positively associated with family voting rights, but we highlight that family wedge is negatively associated with cash payment, which indicates the important role of control-enhancing mechanisms. Dilution risk is crucial at an intermediate level of control, since this relationship is nonlinear. Moreover, we show that both unused debt capacity and the increase in debt capacity are used by family firms to finance the relevant deals, but that these firms become overleveraged after merging, losing some financial flexibility in exchange for equity control purposes.On étudie l'impact d'un contrôle de type familial sur les moyens de paiement choisis lors d'acquisitions réalisées au niveau domestique et international. Cette décision sous-tend le niveau de flexibilité financière dont disposera ultérieurement la firme. Nos résultats montrent que le pourcentage du paiement réalisé à l'aide de liquidités augmente avec le niveau des droits de vote possédés par la famille, mais que la possession d'un "wedge" a l'effet inverse. Le risque de dilution joue un rôle crucial à des niveaux intermédiaires de contrôle. Enfin, les firmes familiales utilisent leur capacité d'endettement disponible pour financer ces opérations, mais deviennent surendettées après

Family ownership and M&A payment method

“…Adopted cut-off points of 20 and 60% were in line with the methodology of previous studies on the topic (Faccio & Masulis, 2005;André and Ben-Amar, 2010;Bouzgarrou & Navatte, 2014). The results show that the relation between family ownership and payment method is stronger for intermediate level of control.…”

“…Although this result may seem inexplicable (as we would logically expect the cash availability to influence the payment method choice), most of researches in the field do not show any significant relation between the level of cash and the acquisition financing choice. Faccio and Masulis (2005), Ben‐Amar and Andre (2007) and Bouzgarrou and Navatte (2014) include cash availability in their analysis and in all the cases the level of cash over total assets does not significantly influence the payment method choice.…”

“…According to their findings, family firms acquiring other firms attain higher short‐term and long‐term performance when compared to non‐family firms. Again, Bouzgarrou and Navatte (2014) find that the percentage of cash used in the consideration is positively related to the level of family voting rights.…”

“…Bena and Li (2014) find that individual, family and government owners are less inclined to engage in M&A activities while the opposite holds for foreign investors. Bouzgarrou and Navatte (2014) study the relationship between family ownership and post-acquisition firm performance. According to their findings, family firms acquiring other firms attain higher short-term and long-term performance when compared to non-family firms.…”

Ownership structure, product market competition and productivity

“…Salloum et al (2013) argue that family involvement in ownership and management has a positive relationship with the financial performance of Lebanese firms. Using a sample of French acquisitions in the 1997-2006 period, Bouzgarrou and Navatte (2013) show that family firms outperform non-family firms. However, taking into account the Portuguese and the Spanish stock markets, Miralles-Marcelo et al (2014) contend that family firms show at least the same performance as non-family firms.…”