‘I want this firm to be in good hands’: Emotional pricing of resigning entrepreneurs

Abstract

Given the importance of non-economic considerations throughout the entrepreneurial life cycle, I aim to investigate the drivers of owner-managers’ ‘emotional pricing’ when they wish to sell their firms to successors. Emotional pricing thereby denotes those elements of the owner-managers’ price expectations that cannot be traced to economic considerations. Building on arguments from behavioral finance, I hypothesize that ‘emotional pricing’, which in this study reflects owner-managers’ willingness to sell the firm at a discount, is driven by the reluctance to lose access to information about the firm and to lose influence on the firm, and by an aversion to putting the firm’s future at risk. In particular, I argue that a long-term relationship between an owner-manager and a firm, a familiar relationship between an owner-manager and a successor, and situational contingencies – especially unsatisfactory firm performance – increase the owner-manager’s emotional-pricing component. I test the hypotheses using a sample of 1354 owner-managers of Swiss small and medium-sized enterprises (SMEs), who provided their views on their exit intentions. I subsequently compare those results to 455 actual ownership transfers involving Swiss SMEs.