Skip to main content
SpringerLink
Log in

Family firms and high technology Mergers & Acquisitions

  • Published:
Journal of Management & Governance Aims and scope Submit manuscript

Abstract

We examine whether family firms undertake value creating high technology M&A. We also examine whether level of ownership, diversification, agency issues and CEO type matter. Our sample consists of high-technology M&A undertaken by Canadian firms over the period 1997–2006. Canada offers a setting with many family firms and the use of control enhancing mechanisms such as dual class shares and pyramid structures. We find a positive relationship between family ownership and announcement period abnormal returns. This relationship, however, starts to decrease at higher levels of ownership but remains overall positive. We also show that the agency conflict between shareholders and professional managers has a detrimental impact on announcement period abnormal returns whereas the conflict between controlling and minority shareholders via control enhancing mechanisms does not. Finally, we document that founder CEO undertake better high tech M&A than descendant or hired CEO.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. While some of the above issues could relate to other types of ownership concentration, we do not have large state ownership in Canada and very large institutional ownership is rare in publicly listed companies because of portfolio and risk considerations (see King and Santor 2008).

  2. See Adams and Ferreira (2008) for a review of the literature on the impact of the use of control enhancing mechanisms (dual class shares, stock pyramids and cross-ownership) on firm performance.

  3. See Kohers and Kohers (2000) for a list of SDC database high tech industries sectors.

  4. Our sample selection procedure is consistent with prior M&A research using the SDC worldwide M&A database (see for example, Rau and Vermaelen (1998) and Faccio and Stolin (2006)). The first five selection criteria resulted in an initial sample of 342 high-tech takeovers. Consistent with the event-study methodology, 46 observations with less than 100 valid returns over the 200-day estimation period were dropped from the sample. We further eliminated 58 observations because their proxy circulars were not available on the SEDAR website to code their ownership structure, governance and executive compensation data. Finally, following normality diagnostic test on our dependent variable CAR (−1, +1), 23 outliers were excluded. Our final sample includes 215 high-technology M&A undertaken by 105 unique acquirers. Given that our sample includes multiple acquirers over the period 1997–2006, Huber/White/Sandwich estimators of variance allowing for observations that are not independent within clusters (105 unique acquirers) are used to compute t-statistics in all regression models.

  5. National Policy NP 58-201 ‘Corporate Governance Guidelines’ and National Instrument NI-58-101 ‘Disclosure of Corporate Governance Practices’ provide a comprehensive description of the Canadian corporate governance regime. Broshko and Li (2006) discuss also the main differences between corporate governance regimes in Canada and the US.

  6. Firms with <100 valid returns over the estimation period were excluded from the sample.

  7. We reran the regressions with a dummy using 20 % threshold, spline dummies at the 10–25 % level and more than 25 % (in Canada the disclosure threshold is 10 %, contrary to the US disclosure threshold of 5 %) and one with a 10–50 % and more than 50 % dummy (consistent with the Cascino et al. (2010) discussion of majority ownership and control). Results are consistent across various specifications so for brevity we only present those at the 10 % level.

  8. Faleye and Huson (2002) find a positive relation between a measure of board effectiveness and bidder returns. Firms receive high scores on the board effectiveness factor when they have small, independent board that meet frequently.

  9. See Dalton et al. (1998), Kang and Zardkoohi (2005) for a review of the board leadership structure literature.

  10. Similar to, among others, Brick et al. (2006), Archambeault et al. (2008), we implement the stock option valuation method of Core et al. (1999) where we value stock options at 25 % of their exercise price. Besides its simplicity, Core et al.’s approach produces results that are in the range of those generated by complex valuation models (see, for instance, Lambert et al. 1991; Core et al. 1999).

  11. As additional sensitivity tests (un-tabulated results), we run regressions using market adjusted returns and find similar results. We also use alternative definitions for related industry (same SDC macro industry code, same 1 digit SIC codes) and replace the all cash dummy by the level of cash paid and results remain the same.

References

  • Adams, R., & Ferreira, D. (2008). One-share one-vote: The empirical evidence. Review of Finance, 12, 51–91.

    Article  Google Scholar 

  • Anderson, R. C., & Reeb, D. M. (2003a). Founding-family ownership and firm performance: Evidence from the S&P 500. Journal of Finance, 58, 1301–1329.

    Article  Google Scholar 

  • Anderson, R. C., & Reeb, D. M. (2003b). Founding-family ownership, corporate diversification and firm leverage. Journal of Law and Economics, 46, 653–684.

    Article  Google Scholar 

  • Andrade, G., Mitchell, M., & Stafford, E. (2001). New evidence and perspectives on mergers. Journal of Economic Perspectives, 15(2), 103–120.

    Article  Google Scholar 

  • Archambeault, D., DeZoort, F. T., & Hermanson, D. (2008). Audit committee incentive compensation and accounting restatements. Contemporary Accounting Research, 25, 965–992.

    Article  Google Scholar 

  • Asquith, P., Bruner, R. F., & Mullins, D. W., Jr. (1983). The gains to bidding firms from mergers. Journal of Financial Economics, 11(1–4), 121–140.

    Article  Google Scholar 

  • Bae, K. H., Kang, J. K., & Kim, J. M. (2002). Tunnelling or value addition? Evidence from mergers by Korean business groups. Journal of Finance, 57, 2695–2740.

    Article  Google Scholar 

  • Baliga, B., Moyer, R. C., & Rao, R. S. (1996). CEO duality and firm performance. Strategic Management Journal, 17, 41–53.

    Article  Google Scholar 

  • Bebchuk, L., Kraakman, R. & Triantis, G. (2000). Stock pyramids, cross-ownership and dual class equity: The mechanisms and agency costs of separating control from cash-flow rights. In R. Morck (Ed.), Concentrated Corporate Ownership (pp. 295–315), NBER.

  • Ben-Amar, W. & André, P. (2006). Separation of ownership and control and acquiring firm performance: The case of family ownership in Canada. Journal of Business Finance & Accounting, 33(3 & 4), April/May 517–543.

    Google Scholar 

  • Benou, G., & Madura, J. (2005). High tech acquisitions, firm specific characteristics and the role of investment bank advisors. Journal of High Technology Management Research, 16, 101–120.

    Article  Google Scholar 

  • Bigelli, M., & Mengoli, S. (2004). Sub-optimal acquisition decision under a majority shareholder system. Journal of Management and Governance, 8, 373–405.

    Article  Google Scholar 

  • Boyd, B. K. (1995). CEO duality and firm performance: A contingency model. Strategic Management Journal, 16, 301–312.

    Article  Google Scholar 

  • Bozec, Y., & Laurin, C. (2008). Large shareholder entrenchment and performance: Empirical evidence from Canada. Journal of Business Finance & Accounting, 35(1 & 2), 29–45.

    Google Scholar 

  • Brick, I. E., Palmon, O., & Wald, J. K. (2006). CEO compensation, director compensation, and firm performance: Evidence of cronyism? Journal of Corporate Finance, 12, 403–423.

    Article  Google Scholar 

  • Broshko, E. B. & Li, K. (2006). Playing by the rules: Comparing principles-based and rules-based corporate governance in Canada and the U.S. Canadian Investment Review, 19, 18–23.

    Google Scholar 

  • Brown, S. J., & Warner, J. B. (1985). Using daily stock returns: The case of event studies. Journal of Financial Economics, 14, 3–31.

    Article  Google Scholar 

  • Bushman, R. M., Indjejikian, R. S., & Smith, A. (1996). CEO compensation: The role of individual performance evaluation. Journal of Accounting and Economics, 21, 161–193.

    Google Scholar 

  • Byrd, J. W., & Hickman, K. A. (1992). Do outside directors monitor managers? Evidence from tender offer bids. Journal of Financial Economics, 32, 195–221.

    Article  Google Scholar 

  • Cascino, S., Pugliese, A., Mussolino, D., & Sansone, C. (2010). The influence of family ownership on the quality of accounting information. Family Business Review, 23(3), 246–265.

    Article  Google Scholar 

  • Chang, S. C., Wu, W. Y., & Wong, Y. J. (2010). Family control and stock market reactions to innovation announcements. British Journal of Management, 21, 152–170.

    Article  Google Scholar 

  • Charitou, A., Louca, C., & Panayides, S. (2007). Cross-listing, bonding hypothesis and corporate governance. Journal of Business Finance and Accounting, 34(7 & 8), 1281–1306.

    Article  Google Scholar 

  • Chen, H. L., & Hsu, W. T. (2009). Family ownership, board independence, and R&D investment. Family Business Review, 22(4), 347–362.

    Article  Google Scholar 

  • Chrisman, J. J., Chua, J. H., & Steier, L. P. (2002). The influence of national culture and family involvement on entrepreneurial perceptions and performance at the state level. Entrepreneurship: Theory and Practice, 26(4), 113–130.

    Google Scholar 

  • Claessens, S., Djankov, S., Fan, J., & Lang, L. H. P. (2000). The separation of ownership and control in East Asian corporations. Journal of Financial Economics, 58, 81–112.

    Article  Google Scholar 

  • Claessens, S., Djankov, S., Fan, J., & Lang, L. H. P. (2002). Disentangling the incentive and entrenchment effects of large shareholders. Journal of Finance, 57, 2741–2771.

    Article  Google Scholar 

  • Connelly, B. L., Hoskisson, R. E., Tihanyi, L., & Certo, S. T. (2010). Ownership as a form of corporate governance. Journal of Management Studies, 47(8), 1561–1589.

    Article  Google Scholar 

  • Core, J. E., Holthausen, R. W., & Larcker, D. F. (1999). Corporate governance, chief executive officer compensation, and firm performance. Journal of Financial Economics, 51, 371–406.

    Article  Google Scholar 

  • Cronqvist, H., & Nilsson, M. (2003). Agency costs of controlling minority shareholders. Journal of Financial and Quantitative Analysis, 38, 695–719.

    Article  Google Scholar 

  • Dalton, D. R., Daily, C. M., Ellstrand, A. E., & Johnson, J. L. (1998). Meta-analytic reviews of board composition, leadership structure, and financial performance. Strategic Management Journal, 19, 269–290.

    Article  Google Scholar 

  • Datta, D. K., Pinches, G. E., & Narayanan, V. K. (1992). Factors influencing wealth creation from mergers and acquisitions: A meta-analysis. Strategic Management Journal, 13, 67–84.

    Article  Google Scholar 

  • Datta, S., Iskandar-Datta, M., & Raman, K. (2001). Executive compensation and corporate acquisition decisions. Journal of Finance, 56(6), 2299–2336.

    Article  Google Scholar 

  • Doidge, C., Karolyi, G. A., & Stulz, R. (2004). Why are foreign firms listed in the US worth more? Journal of Financial Economics, 71, 205–239.

    Google Scholar 

  • Dong, M., Hirschleifer, D., Richardson, S., & Teoh, S. H. (2006). Does investor misevaluation drive the takeover market? Journal of Finance, 61(2), 725–762.

    Article  Google Scholar 

  • Duggal, R., & Millar, J. A. (1999). Institutional ownership and firm performance: The case of bidder returns. Journal of Corporate Finance, 5, 103–117.

    Article  Google Scholar 

  • Eckbo, E., & Thorburn, K. (2000). Gains to bidder firms revisited: Domestic and foreign acquisitions in Canada. Journal of Financial and Quantitative Analysis, 35(1), 1–25.

    Article  Google Scholar 

  • Eisenberg, T., Sundgren, S., & Wells, M. T. (1998). Large board size and decreasing firm value in small firms. Journal of Financial Economics, 48(1), 35–54.

    Article  Google Scholar 

  • Eun, C. S., Kolodny, R., & Scheraga, C. (1996). Cross-border acquisitions and shareholder wealth: Tests of the synergy and internalization hypotheses. Journal of Banking & Finance, 20, 1559–1582.

    Article  Google Scholar 

  • Faccio, M., & Lang, L. H. P. (2002). The ultimate ownership of western European corporations. Journal of Financial Economics, 65, 365–395.

    Article  Google Scholar 

  • Faccio, M., & Stolin, D. (2006). Expropriation vs. proportional sharing in corporate acquisitions. Journal of Business, 79(3), 1413–1444.

    Article  Google Scholar 

  • Faccio, M., McConnell, J., & Stolin, D. (2006). Returns to acquirers of listed and unlisted targets. Journal of Financial Quantitative Analysis, 41, 197–220.

    Article  Google Scholar 

  • Faleye, O., & Huson, M. (2002). Understanding acquisition returns: The role of corporate governance. Paper presented at the 2002 Financial Management Association Annual Meeting, San Antonio Texas, October 17–19.

  • Feito-Ruiz, I., & Menedez-Requejo, S. (2010). Family firm mergers and acquisitions in different legal environments. Family Business Review, 23(1), 60–75.

    Article  Google Scholar 

  • Gadhoum, Y. (2006). Power of ultimate controlling owners: A survey of Canadian landscape. Journal of Management and Governance, 10, 179–204.

    Article  Google Scholar 

  • Gomez-Mejia, L. R., Haynes, K., Nunez-Nickel, M., Jacobson, K., & Moyano-Fuentes, J. (2007). Socio emotional wealth and business risks in family controlled firms: Evidence from Spanish olive oil mills. Administrative Science Quarterly, 52, 106–137.

    Google Scholar 

  • Gomez-Mejia, L. R., Makri, M., & Kintana, M. L. (2010). Diversification decisions in family-controlled firms. Journal of Management Studies, 47(2), 223–252.

    Article  Google Scholar 

  • Gregory, A. (2005). The long run abnormal performance of UK acquirers and the free cash flow hypothesis. Journal of Business Finance & Accounting, 32(5&6), 777–814.

    Article  Google Scholar 

  • Hagedoorn, J., & Duysters, G. (2002). The effect of mergers and acquisitions on the technological performance of companies in a high-tech environment. Technology Analysis and Strategic Management, 14(1), 68–85.

    Article  Google Scholar 

  • He, L. (2008). Do founders matter? A study of executive compensation, governance structure and firm performance. Journal of Business Venturing, 23, 257–279.

    Article  Google Scholar 

  • Holmen, M., & Knopf, J. D. (2004). Minority shareholder protections and the private benefits of control for Swedish mergers. Journal of Financial and Quantitative Analysis, 39, 167–191.

    Article  Google Scholar 

  • James, H. (1999). Owner as manager, extended horizons and the family firm. International Journal of the Economics of Business, 6, 41–56.

    Article  Google Scholar 

  • Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 76, 323–329.

    Google Scholar 

  • Jensen, M. C. (1993). Modern industrial revolution, exit, and the failure of internal control systems. Journal of Finance, 48, 831–880.

    Article  Google Scholar 

  • Jensen, M. C. (2005). Agency costs of overvalued firms. Financial Management, 34(1), 5–19.

    Google Scholar 

  • Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.

    Article  Google Scholar 

  • Kang, E., & Zardkoohi, A. (2005). Board leadership structure and firm performance. Corporate Governance: An International Review, 13(6), 785–799.

    Article  Google Scholar 

  • King, M., & Santor, E. (2008). Family values: Ownership structure, performance and capital structure of Canadian firms. Journal of Banking & Finance, 32(11), 2423–2432.

    Article  Google Scholar 

  • Kohers, N. & Kohers, T. (2000). The value creation potential of high-tech mergers. Financial Analysts Journal, 56, 40–50.

    Google Scholar 

  • Kohers, N. & Kohers, T. (2001). Takeovers of technology firms: expectations vs. reality, Financial Management, 30, 35–54.

    Google Scholar 

  • La Porta, R., Lopez-De-Silanes, F., & Shleifer, A. (1999). Corporate ownership around the world. Journal of Finance, 54, 471–517.

    Article  Google Scholar 

  • Lambert, R. A., Larcker, D. F., & Verrecchia, R. E. (1991). Portfolio considerations in valuing executive compensation. Journal of Accounting Research, 29, 129–149.

    Article  Google Scholar 

  • Lang, L. H. P., Stulz, R. M., & Walking, R. A. (1991). A test of the free cash flow hypothesis: The case of bidder returns. Journal of Financial Economics, 29, 315–335.

    Article  Google Scholar 

  • Lubatkin, M. H., Schultze, W. S., Ling, Y., & Dino, R. N. (2005). Commentary: the effects of parental altruism on the governance of family-managed firms. Journal of Organizational Behavior, 26, 313–330.

    Article  Google Scholar 

  • Maury, B. (2006). Family ownership and firm performance: Empirical evidence from western European corporations. Journal of Corporate Finance, 12, 321–341.

    Article  Google Scholar 

  • Miller, D., Le Breton-Miller, I., Lester, R. H., & Cannella, A. A., Jr. (2007). Are family firms really superior performers? Journal of Corporate Finance, 13, 829–858.

    Article  Google Scholar 

  • Miller, D., Le Breton-Miller, I., & Lester, R. H. (2010). Family ownership and acquisition behavior in publicly-traded companies. Strategic Management Journal, 31, 201–223.

    Google Scholar 

  • Moeller, S. B., & Schlingemann, F. P. (2005). Global diversification and bidder gains: A comparison between cross-border and domestic acquisitions. Journal of Banking & Finance, 29, 533–564.

    Google Scholar 

  • Moeller, S. B., Schlingemann, F. P., & Stulz, R. M. (2004). Firm size and the gains from acquisitions. Journal of Financial Economics, 73(2), 201.

    Article  Google Scholar 

  • Morck, R., Shleifer, A., & Vishny, R. W. (1988). Management ownership and market valuation: An empirical analysis. Journal of Financial Economics, 20, 293–315.

    Article  Google Scholar 

  • Pedersen, T., & Thomsen, S. (2003). Ownership structure and value of the largest European firms: The importance of owner identity. Journal of Management and Governance, 7, 25–55.

    Article  Google Scholar 

  • Perez-Gonzalez, F. (2006). Inherited control and firm performance. The American Economic Review, 96(5), 1559–1588.

    Article  Google Scholar 

  • Ranft, A. L., & Lord, M. D. (2000). Acquiring new knowledge: The role of retaining human capital in acquisitions of high tech firms. Journal of High Technology Management Research, 11(2), 295–319.

    Article  Google Scholar 

  • Rau, P. R., & Vermaelen, T. (1998). Glamour, value and the post-acquisition performance of acquiring firms. Journal of Financial Economics, 49, 223–253.

    Google Scholar 

  • Sánchez-Ballesta, J. P., & García-Meca, E. (2007). A meta-analytic vision of the effect of ownership structure on firm performance. Corporate Governance: An International Review, 15(5), 879–893.

    Article  Google Scholar 

  • Sciascia, S., & Mazzola, P. (2008). Family involvement in ownership and management: Exploring nonlinear effects on performance. Family Business Review, 21(4), 331–345.

    Google Scholar 

  • Shleifer, A., & Vishny, R. W. (1989). Management entrenchment: The case of manager-specific investments. Journal of Financial Economics, 25(1), 123–139.

    Article  Google Scholar 

  • Shleifer, A., & Vishny, R. W. (1997). A survey of corporate governance. Journal of Finance, 52, 737–783.

    Article  Google Scholar 

  • Smith, B., & Amoako-Adu, B. (1999). Management succession and financial performance of family controlled firms. Journal of Corporate Finance, 5, 341–368.

    Article  Google Scholar 

  • Subrahmanyam, V., Rangan, N., & Rosenstein, S. (1997). The role of outside directors in bank acquisitions. Financial Management, 26, 23–36.

    Article  Google Scholar 

  • Tsai, K. H., & Wang, J. C. (2008). External technology acquisition and firm performance: A longitudinal study. Journal of Business Venturing, 23, 91–112.

    Article  Google Scholar 

  • Villalonga, B., & Amit, R. (2006). How do family ownership, control and management affect firm value? Journal of Financial Economics, 80, 385–417.

    Article  Google Scholar 

  • Wong, Y. J., Chang, S. C., & Chen, L. Y. (2010). Does a family-controlled firms perform better in corporate venturing. Corporate Governance: An International Review, 18(3), 175–192.

    Article  Google Scholar 

  • Wright, P., Kroll, M., Lado, A., & Van Ness, B. (2002). The structure of ownership and corporate acquisition strategies. Strategic Management Journal, 23, 41–53.

    Google Scholar 

  • Yen, T., & André, P. (2007). Concentrated ownership and long term operating performance of acquiring firms: The case of English origin countries. Journal of Economics and Business, 59, 380–405.

    Article  Google Scholar 

  • Yermack, D. (1996). Higher market valuation of companies with small board of directors. Journal of Financial Economics, 40, 185–213.

    Article  Google Scholar 

  • Yuce, A., & Ng, A. (2005). Effects of private and public Canadian mergers. Canadian Journal of Administrative Sciences, 22, 111–124.

    Article  Google Scholar 

  • Zahra, S. A., Hayton, J. C., & Salvato, C. (2004). Entrepreneurship in family vs. non-family firms: A resource-based analysis of the effect of organizational culture. Entrepreneurship Theory & Practice, 28(4), 363–381.

    Article  Google Scholar 

  • Zhang, G. (1998). Ownership concentration, risk aversion and the effect of financial structure on investment decisions. European Economic Review, 42, 1751–1778.

    Google Scholar 

Download references

Acknowledgments

We thank seminar participants at the Corporate Governance: An International Review Conference in Birmingham and EFM Athens and comments from colleagues at the University of Edinburgh, HEC Montréal, Université du Québec à Montréal and Université de Paris I and XII. Walid Ben-Amar gratefully acknowledges financial support from the University of Ottawa’s Telfer School of Management Research fund. Paul André gratefully acknowledges support from the Research Alliance in Governance and Forensic Accounting funded within the Initiative on the new economy program of the Social Sciences and Humanities Research Council of Canada (SSHRC). Paul André was on honorary visiting professor at Cass Business School during some work on this paper.

Author information

Authors and Affiliations

  1. ESSEC Business School, Av. Bernard Hirsch, B.P. 50105, 95021, Cergy, France

    Paul André

  2. Telfer School of Management, University of Ottawa, 55 Laurier East, Ottawa, ON, K1N 6N5, Canada

    Walid Ben-Amar

  3. Queen’s School of Business, Queen’s University, Kingston, ON, K7L 3N6, Canada

    Samir Saadi

Authors
  1. Paul André
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Walid Ben-Amar
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Samir Saadi
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Paul André.

Rights and permissions

Reprints and permissions

About this article

Cite this article

André, P., Ben-Amar, W. & Saadi, S. Family firms and high technology Mergers & Acquisitions. J Manag Gov 18, 129–158 (2014). https://doi.org/10.1007/s10997-012-9221-x

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10997-012-9221-x

Keywords

JEL Classification

Search

Navigation