Family ownership and risk: the role of family managers

Abstract

Purpose This study aims to investigate the relationship between family managers and firms’ risk levels in a context characterized by low investor protection and firm opacity. Specifically, this paper examines whether the level of risk faced by firms is affected by family shareholders’ ownership stake and activism. Design/methodology/approach Corporate governance data were hand-collected for a sample of 90 Italian listed companies and 540 observations from the year 2018. Regression analysis was then used to test the research hypotheses. Findings This study provides evidence of a positive association between active family ownership and risk faced by sampled firms. This study also finds that the number of inside directors is negatively correlated with firms’ risk-taking. Overall, the results confirm family managers’ influence on firms’ risk choices and show consistency with theoretical arguments in favor of hiring professional managers to guide family-owned firms. Practical implications Practical implications emerge from the study findings. First, family owners should consider to hire a larger number of professional managers to support firms’ wealth maximization and retention and to reduce default risks. Second, investors should take into account the firms’ board of directors and management composition to better assess the investments risk level. Finally, the positive correlation between active family owners and systematic risk suggests the opportunity for regulators to improve the legal requirements related to minority directors to increase their effectiveness and, therefore, minority shareholders’ protection. Originality/value This study extends the literature on the association between ownership structure and firms’ risk levels, showing the effect of family managers on firms’ risk levels. Besides, to the best of the authors’ knowledge, no previous study investigates professional executives’ influence on risk when family ownership prevails.

The corporate governance-diversification link: exploring the heterogeneity of family firms

“…On the one hand, results on board gender diversity suggest that to benefit from the typical female directors’ risk-mitigating function (Birindelli et al , 2020), nonlisted family firms should modulate their appointment in such a way that a critical mass is reached. Similar conclusions can be drawn for the appointment of professional outside directors, as our findings are in line with prior studies indicating the centrality of nonfamily directors to integrate more skilled competences in family firms’ management, thus, reducing their risk levels (D’Este and Carabelli, 2022). On the other hand, nonfamily shareholders in a low investor protection environment should be aware of the greater risk propensity associated with family firms having larger boards, as well as of the potential “grey directors” nature of female family directors (Sarkar and Selarka, 2021).…”

“…The observed positive effect of board size is even more interesting in our research setting. First, under agency theory, family owners exert a stronger influence on decision-making processes, and as most Italian family firms are characterized by large ownership stakes operating in a low shareholders protection environment (D’Este and Carabelli, 2022), our findings support previous studies reporting a positive influence of larger ownership stakes on diversification strategies. This can also be explained according to the behavioral agency theory, predicting that the risk aversion of family owners may be affected by reasons other than economic assessment (Lim et al ., 2010).…”

Bibliometric analysis on corporate governance topics published in the journal ofCorporate Governance: The International Journal of Business in Society

“…The results shown in Table 4 confirm those of the bibliometric analysis and indicate that the most research topics of papers on corporate governance topics published in the journal of Corporate Governance (Bingley) are about the overall corporate governance with, representing 52.41% of the total topics. This topic includes corporate governance codes (Humphries and Whelan, 2017; Lobrij et al , 2020; Muneeza and Hassan, 2014; Nizaeva and Uyar, 2017; Shehata, 2015), ownership structures, (Acero et al , 2017; D’Este and Carabelli, 2022; Lam and Lee, 2012; Rossi and Cebula, 2016; Utama et al , 2017) and agency theory (Andrikopoulos et al , 2019; ElKelish, 2018; Garanina and Kaikova, 2016; Tompkins and Hendershott, 2012).…”

The impact of managerial ability on corporate tax risk and long-run tax avoidance: empirical evidence from a developing country

“…In general, the corporate governance mechanism is the primary tool for risk management in the company (D’Este and Carabelli, 2022). The tax risk is manageable.…”