Sometimes less is more: A real options view on minority acquisitions by family firms

Acquisitions involve high uncertainty, as firms commit substantial resources long before the performance outcomes of these investments are known. Drawing on real options logic, firms may prefer minority acquisitions over majority acquisitions because minority stakes secure strategic options while reducing exposure to risk. We examine this assumption in the context of family firms, whose desire to preserve socioemotional wealth (SEW), alongside financial returns, leads them to make strategic choices that differ from those of non-family firms. Based on a panel dataset of U.S. S&P 500 firms, we find that, through their prioritization of SEW (e.g., independence, binding social ties, and family identity and reputation), family firms are more likely than non-family firms to undertake minority acquisitions and to make a follow-up acquisition after an initial minority acquisition. Furthermore, family firms’ prioritization of SEW (e.g., emotional attachment and binding social ties) leads to a higher inclination toward industry-related minority acquisitions.