Diversification Strategy Of Family Firms And The Performance Of M&A

The "Evergreen Family Business" has been deeply concerned by the relevant theorists and owners of family enterprises.Whether it is possible to obtain the essential factors of sustainable operation mainly depends on its adaptability in the changing environment.As a crucial strategy,corporate diversification could have a great impact on economic activities.Based on the entropy index method given by Berry(1975)and Jacquemin and Berry(1979),this paper measures the diversification degree of listed family businesses and taking the most attractive investment activities of enterprises,M&A events,as the research foothold,aiming to study the effect the diversification strategy produces to the M&A events,by which we can conclude which strategies the family firms should implement.Identifying acquisitions made by listed family firms between2003 and 2012,our paper examines the relation between bidder returns and the corporate diversification.We find that the greater the degree of corporate diversification is,the worse the performance of M & A will be,which is mostly owing to the inter-industry diversification.Further analysis shows that this negative correlation exists in the conditions when the acquirers CEO is with lower political connections,which also explains the relation between the personalities of CEOs and corporate strategy.This article enriches the literature on diversification strategy and M&A of family firms.This paper first examines the influence of the subdivision strategy on the performance of mergers and acquisitions,and provides a reference for whether the family enterprises should and how to implement the diversification strategy.At the same time,the results of this study also provide a new idea for the stock selection in stock investment.