Risk-taking behavior in private family firms: the role of the non-family CEO

Abstract

This paper studies the risk-taking behavior of private family firms in general as well as variations in risk-taking behavior among the group of family firms. We use the agency perspective to theoretically argue that the usually high degree of coupling of ownership and management causes family firms to be on average less risk-taking than non-family firms. The introduction of a non-family CEO who usually has no or only limited legal ownership will have a positive influence on the level of risk-taking in family firms. However, as the tenure of the non-family CEO increases, he or she can develop feelings of psychological ownership resulting again in a rise of coupling of ownership and management, causing the positive effect to level out.