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Previous empirical research examining the link between firm risk and the type of stockholder control has yielded conflicting results. These studies have sorted firms into two categories, owner‐controlled firms and manager‐controlled firms, even though the theoretical discussion implies behavior associated with three distinct groups. This paper argues both theoretically and empirically that an owner‐manager has more incentive and more opportunity to take risks than a hired manager. Moreover, a hired manager under the control of a dominant stockholder has less opportunity and less incentive to take risks than managers in firms without a dominant stockholding interest.

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