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FAMILY FIRM VALUATION BY FAMILY CEOS : THE ROLE OF SOCIOEMOTIONAL VALUE

Based on the contentions of prospect theory that ownership endows possessions with a value premium, this study provides evidence that socioemotional value in family firms influences the financial value attached to the firm by family owners. While previous work suggests an imputed link between socioemotional value and family firm behavior, the ability to measure the concept is a critical step toward establishing its direct linkage with behavior. The results from two different samples show that the perceived financial value attached to family firms by ownerCEOs increases with their intention for transgenerational sustainability, a distinctive socioemotional attribute of family firm ownership. 1. Executive Summary The preservation of socioemotional value is suggested in the literature to be an important non-economic goal of family firms and has been used to make important predictions about family firm behavior (e.g., Astrachan and Jaskiewicz, 2008; Gómez-Mejia, Hynes, NunezNickel, and Moyano-Fuentes, 2007; Sharma, Chrisman, and Chua, 1997). However, to the best of our knowledge, the existence of socioemotional value in family firms has been imputed rather than supported by direct evidence. Without such evidence, a direct and measurable linkage between socioemotional value and family firm behavior is difficult to establish, leaving ample room for alternative explanations. Prospect theory contends that decision makers use the status quo as a frame of reference when valuing possessions. This leads to the perception that parting with possessions is a loss and then through loss aversion to an endowment premium associated with ownership. Applying these contentions to the financial valuations of family firms by their family owners, we argue that as the socioemotional value of the firm to family owners increases so does the loss felt in selling the business. Thus, the greater the socioemotional value, measured in this study as transgenerational sustainability intentions, the greater the endowment premium.