This study focuses on family firms' acquisition propensity. Recognizing that family firms are per se reluctant to acquire, we investigate how the legal system in which such firms operate directly affects their reluctance to undertake acquisitions. Extending previous work on the role of the institutional environment in family firms' strategic decisions, we also analyze the legal system's moderating effect in the relationship between family involvement in the business and the probability of acquisitions. Our sample covers family firms from Western European countries with four different legal systems over a nine-year period (2007-2015). We find that family involvement makes family firms more reluctant to undertake acquisitions, and that family firms operating in legal systems with a higher level of shareholder protection are more prone to acquire other businesses. Additionally, our results show that the aversion towards acquisitions associated with family participation in the business is mitigated in countries where shareholders are better protected, thus supporting the view that the legal system moderates the negative impact that family involvement has on acquisition propensity.
Acquisitions; Family firms; Family involvement; Heterogeneity; Legal system