Corporate Divestitures and Family Control

September 12, 2013 Leave a comment

Corporate Divestitures and Family Control

Emilie R. Feldman University of Pennsylvania – The Wharton School

Raphael H. Amit University of Pennsylvania – Management Department

Belen Villalonga New York University (NYU) – Leonard N. Stern School of Business

August 5, 2013

Abstract: 
This paper investigates the propensity of family firms to undertake divestitures and the performance consequences of these transactions, drawing on behavioral and agency theory. Using hand-collected data on a sample of over 30,000 firm-year observations, we find that family firms are less likely than their non-family counterparts to undertake divestitures, especially when these companies are managed by family rather than non-family CEOs. We also show that family firms are less likely than non-family firms to divest unrelated businesses, though there is no difference in the relative propensities of these two types of companies to undertake related divestitures. However, the divestitures undertaken by family firms, particularly those run by family-CEOs, are associated with significantly higher post-divestiture performance than those undertaken by non-family firms. Taken together, these findings contribute to research on corporate strategy and family firms by showing that owners’ and managers’ identities help explain why divestitures are underutilized despite the value they create.

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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