Risk aversion in family firms: what do we really know?

Abstract

Purpose -Risk aversion is an important characteristic associated with family firms. Despite growing literature in recent years, a consistent picture of what we know about the risk aversion of family firms has not evolved. Thus, this paper presents a systematic overview of whether family firms are found to be more risk averse than non-family firms, the factors influencing the risk aversion of family firms and the outcomes of risk aversion. Design/methodology/approach -This paper follows the tenets of Tranfield et al. for conducting a systematic literature review. Following a keyword search and an assessment of fit for this review, 29 papers were analyzed with respect to bibliographical information, research design and findings. Findings -Most studies find that family firms are indeed more risk-averse than non-family firms. However, some findings advance the notion that this phenomenon strongly depends on the situation of the family firm and that the controlling family may take irrational risks to secure control over the firm. From content analysis, five clusters of factors increasing or decreasing the risk aversion of family firms and six clusters on the outcomes of risk aversion are derived. Research limitations/implications -A broad array of potentially fruitful research directions is presented. Specifically, more qualitative research on risk aversion in family firms is needed, as well as research that takes into account the situational factors and the reactions of the financial services industry to the risk-avoiding behavior of family firms. Originality/value -This paper represents the first comprehensive literature review on risk aversion in family firms.

Tweaking the entrepreneurial orientation–performance relationship in family firms: the effect of control mechanisms and family-related goals

“…While Zahra (2005) states that Risk-Taking is important for the survival of a family business, Naldi et al (2007) show that family firms are more risk averse than non-family firms and that Risk-Taking has a negative impact on financial performance due to superior goals such as safety thinking and keeping firm control within the family. We hypothesize a negative effect of risk-taking which is in accordance with the majority of prior literature (Hiebl 2013…”

“…Proactiveness fosters financial performance ), but is depending on the age of the firm (De Massis et al 2014) and only occurs during selected moves (Martin and Lumpkin 2003). Findings on Risk-Taking diverge with regards to its presence in family firms (Hiebl 2013) and the effect on performance (Zahra 2005;Naldi et al 2007). Autonomy positively influences financial performance in family firms (Habbershon and Pistrui 2002), especially the independence from stakeholders is considered important (Zellweger and Sieger 2012).…”

“…This attitude is often considered to be less prevailing with family firms (Lumpkin et al 2010;Nordqvist and Melin 2010;Short et al 2009;Nordqvist et al 2008) as safety thinking (performance hazard risk) and keeping the firm control within the family (control risk) are assumed to be superior goals (Zellweger and Sieger 2012;Gómez-Mejía et al 2007;Hiebl 2013). However, undiversified wealth of the managers' own capital (ownership risk) habitually is invested in the company, leading to a risk-bearing and risk-sharing attitude (Zahra 2003) and indicating a relatively high level of Risk-Taking (Xiao et al 2001;Zellweger and Sieger 2012;Bianco et al 2013).…”

The characteristics of family firms: exploiting information on ownership, kinship, and governance using total population data

“…To determine which aspects of family firms and private non-family firms to characterize, we examined literature reviews covering recent trends in family business research (Sharma et al 1997;Sharma 2004;Gedajlovic et al 2012;Hiebl 2012;Kontinen and Ojala 2010;Mazzi 2011;Yu et al 2012;Xi et al 2015). Based on these reviews, we identify six commonly discussed aspects within family business research that have been used to distinguish family from non-family firms: financial performance, financial composition, risk preference, firm age, firm size, and internationalization.…”

Family Business Survival and the Role of Boards

“…Family firms are generally more risk averse than non-family firms (Hiebl, 2013) but actions to preserve SEW through maintaining ownership and control may undermine the survivability of the firm (Zellweger, et al, 2013). As a result, family firms may not undertake sufficient diversification when there is a need to invest in diversifying innovation to increase survival chances (Carney, 2005).…”