Socioemotional Favoritism: Evidence from Foreign Divestitures in Family Multinationals

We theorize how family and non-family CEOs in family multinational enterprises (FMNEs) divest foreign subsidiaries. In doing so, we propose an integrative framework that supplements the socioemotional wealth perspective by introducing the notion of socioemotional favoritism. Using this framework, we hypothesize and find that family CEOs are less likely to divest than non-family CEOs by analyzing 161 Korean manufacturing FMNEs between 1998 and 2003. We also find that family CEOs avoid divesting foreign subsidiaries with larger affective endowments, particularly those under family control through threshold ownership and those located in host countries where families have already lost ownership of subsidiaries through past divestitures. We conclude by discussing the implications of our findings for the family firm literature.