Family firms and M&A value creation: Lessons from the Swedish market

Abstract: This study examines the effect of family ownership on acquirer value creation through mergers and acquisitions (M&A) in Sweden. Sweden makes an interesting case with a high presence of family firms, dual-class share structures, and pyramid holdings, along with strong minority shareholder protection. We use announcement returns to acquisitions as a proxy for value creation for acquirers' shareholders. We find a significant and positive association between family ownership and announcement returns, implying that family firms generate, on average, more value than non-family firms through M&A in Sweden. Our results are robust across several different family firm definitions, also when accounting for family control through investment companies. However, we find a negative association between announcement returns for family firms and the presence of family members as the CEO or board members at acquisition announcement. These results suggest that while exercising private benefits in family firms in Sweden is likely very limited, the CEO or board member may be unqualified due to limited labour market competition. We also find, albeit with somewhat weaker results, a negative association between announcement returns and the wedge between cash flow rights and voting rights of the acquirer.