Paper 3 | Protecting the family legacy: How firms respond to antitrust enforcement actions

Abstract

Prosecution for antitrust violations can be costly due to the resulting increase in competitive threats and reputational damage. Although firms’ financial responses to such violations have been studied, we know little about how these responses differ across owner identities. We argue that family owners’ response to antitrust enforcement actions will be distinctive, bringing to bear intangible assets in the form of symbolically and socially significant family leadership to restore reputation. Whereas nonfamily firms raise equity capital and invest to cope with the effects of antitrust actions, families invest less and avoid diluting their ownership in order to preserve control. Yet, because family and firm reputation and economic wealth are closely tied, family owners dismiss the old guard and recruit trusted senior family leaders to restore stakeholder confidence, especially when the antitrust enforcement leads to sanctions and the reputational exposure is high. Bringing in these family leaders speeds economic recovery. In short, family firms do less financially, while leveraging family leadership. These notions are supported in a major longitudinal study of responses to antitrust enforcement actions by Italian firms.