Mergers and acquisitions can fundamentally alter a firm’s future, shaping its growth, strategic direction, and long-term survival. For family-owned businesses, however, these decisions extend beyond financial calculations. They are closely linked to issues of control, family identity, and risk tolerance. Recent research by Luiz Ricardo Kabbach, clinical associate professor of management at the Indiana University Kelley School of Business, explores how family governance and ownership structures influence merger and acquisition decisions in emerging markets.
The study, The Role of Family Control and Ownership in M&A Decisions: Evidence from an Emerging Market, published in Research in International Business and Finance, examines why family-controlled firms often behave differently from non-family businesses when considering mergers and acquisitions. The findings show that family firms are generally more cautious about pursuing such transactions, mainly due to their desire to preserve control and minimise financial risk. However, this conservative approach is not uniform and varies depending on how governance within the family firm is structured.
Kabbach and his colleagues explain that family-controlled firms frequently prioritise the preservation of legacy, identity, and decision-making authority over potential financial gains. As a result, they are less likely than non-family firms to engage in mergers and acquisitions. Yet the study highlights that ownership structure plays a critical role in shaping these decisions, particularly through the distribution of voting rights and cash flow rights.
Voting rights determine the level of control a shareholder has over strategic decisions, often allowing families to maintain influence even when their economic ownership is limited. Cash flow rights, on the other hand, reflect the shareholders’ financial exposure to gains and losses. The research finds that higher family voting rights tend to encourage merger and acquisition activity, as strong control reduces fears of losing authority or diluting family identity. In contrast, higher cash flow rights increase financial exposure and loss aversion, making families more reluctant to pursue acquisitions perceived as risky.
The researchers focused their analysis on Brazil, an emerging market with a high prevalence of family-controlled firms and a business environment characterised by both growth opportunities and uncertainty. This context allowed them to examine how family governance operates under conditions of heightened risk. The study was conducted in collaboration with Mariana Martins Meirelles-de-Castro of Indiana University Bloomington and Aquiles Kalatzis of the University of São Paulo.
According to Kabbach, the findings help explain how family firms balance economic objectives with socioemotional considerations. The research sheds light on when families prioritise social attachment over financial performance and how governance structures can help manage this tension. By clarifying the role of ownership and control, the study contributes to a deeper understanding of strategic decision-making in family businesses.
Kabbach hopes the research encourages family firms to recognise governance as a key factor influencing both strategic choices and long-term continuity. Firms that endure across generations, he suggests, often adopt governance structures that promote collaboration between generations, allowing successors to lead while benefiting from the experience of their predecessors. While governance alone cannot guarantee success, it can play an essential role in mitigating risk and supporting informed decision-making, particularly in uncertain and rapidly evolving markets.
More information: Luiz Ricardo Kabbach et al, The role of family control and ownership in M&A decisions: Evidence from an emerging market, Research in International Business and Finance journal. DOI: 10.1016/j.ribaf.2025.103125
Journal information: Research in International Business and Finance journal Provided by Indiana University