Abstract
This article makes progress in understanding how the heterogeneity of governance factors, and changes in the political/economic landscape influence family firms’ risk taking. Using a sample of 133 Chilean listed firms, this article studies the risk taking behavior of family firms from 2009 to 2016. Using several informational sources, an unbalanced panel data set is built to make estimations employing the two-way fixed effects OLS data panel regressions. GMM is also employed for robustness. Chilean family firms’ risk-taking, measured through z-score and ROA volatility, is higher than in non-family firms. This would be a response to take advantage of business opportunities that enhance their long-term position in financial and socioemotional wealth. Results also indicate that founders’ leadership (on the board of directors) aligns with higher levels of corporate risk, while the influence of founders’ descendants within the board is in the opposite direction. Finally, political uncertainty has a negative and statistically significant influence on Chilean family firms’ risk taking. Context (defined as point of reference) is a critical factor in explaining family firms’ strategic behavior through socioemotional wealth. Performance above/below expectation, the danger of bankruptcy and the global financial crises have been used as points of reference (context) to explain family firms’ risk taking, but political and economic landscapes have not been included before as explanatory variables.
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Poza and Dauguerty (2014) and Zellweger (2017) report that these firms represent about 70% of the world enterprises, account for at least 40% of the employment and GDP worldwide and they are prevalent even among large businesses giving as an example that over 37% of the Fortune 500 companies are family-controlled.
By socioemotional wealth we refer to non-financial/non-economic aspects of the firm that meet the family’s affective needs, such as identity, the ability to exercise family influence, and the perpetuation of the family dynasty. Using a socioemotional reference point, family firms are likely to place a high priority on maintaining family control even if this means accepting an increased risk of poor firm performance. Nevertheless, as they must prevent the firm from failing, they may also act more conservatively by avoiding business decisions that may increase performance variability. The possibility that family firms could be both risk willing and risk adverse hinges on distinguishing between two types of risk: performance hazard risk and venturing risk.
The initial sample contains all the public Chilean firms with financial statements (200 firms). However, there are different accounting presentations that make it impossible to compare figures Then banks, financial institutions, pension fund administrators, insurance companies and investment firms are eliminated. The final sample then comprises 133 firms.
In the sample, the average ownership in hands of the main first shareholder, the main three and five shareholders are 45%, 63%, and 72%, respectively.
The Financial Market Commission’s website reports a list of firms that are affiliated with each business group.
The presidential election takes place in December 15, 2013. Since most of the data is obtained from financial statements then 2014 will better reflect the new information. Furthermore, there are no other important political events in 2014 that may confound the results.
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We acknowledge the financial support provided by “Dirección de Investigación e innovación de la Universidad Católica de la Ssma. Concepción” through the research project DINREG 13/2017.
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Llanos-Contreras, O., Arias, J. & Maquieira, C. Risk taking behavior in Chilean listed family firms: a socioemotional wealth approach. Int Entrep Manag J 17, 165–184 (2021). https://doi.org/10.1007/s11365-019-00628-y
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DOI: https://doi.org/10.1007/s11365-019-00628-y