What Explains the Value of a Family Firm in the Eyes of the Owner? A Socioemotional wealth - Microeconomic Perspective

Abstract

"There is much criticism on the assumptions of economic rationality and of the supposed sole objective of maximization of financial benefits that when applied to the field of study of family firms results in inferences that are not empirically observed. Reconciling to some extent these two approaches is theoretically relevant because it would help to explain intertemporally the utility function and value of a family firm based on socioemotional wealth approach and economic assumptions. From a practical point of view, it is important to better understand the source of emotional value for the owner-manager of a family firm because, for example, it often hinders or prevents the purchase or sale of family businesses and the use of external debt and capital, limiting its growth and a better allocation of resources. Drawing on microeconomics assumptions in general and on the utility theory in particular along with the Socioemotional wealth approach, we propose through a formal model a more nuance theoretical explanation of the family owner utility function. Likewise, we provide microeconomic support and extra guiding theoretical explanation for perceived family firm total value in the eyes of the owner-manager from an intertemporal approach. Finally, we define Socioemotional wealth from a microeconomic perspective, thereby, complementing and enriching previous Socioemotional wealth definitions. We argue throughout this work that the supposed irrationality of family firm is not such; it is not irrational to derive utility from sources other than consumption (consumption-based approach)."