Norwegian Family Firms and Risk-Taking

Abstract

This study examines the effect of family firms, CEO and ownership composition on financial and operational risk-taking for 11,157 Norwegian private firms between 2006 and 2015. First, this study finds clear indications that family firms take on lower levels of financial risk compared to non-family firms. Furthermore, the study finds evidence that supports the notion that family firms operate with lower revenue volatility and hence a lower degree of operational risk. However, we do not find any evidence indicating that family firms are less risk averse with respect to their degree of operating leverage. Second, the study finds that the presence of a family CEO has a negative effect on financial risk and the volatility of revenues. The composition of fixed and variable costs observed for the companies in the study is however, not affected by the management of the company. Third, the study reveals that family firms, where the ultimate ownership exceeds 90 percent, tend to take on less financial risk and have a lower degree of operating leverage compared to other family firms. We find no evidence that the concentration of ownership, within family firms, affect the volatility of revenues. Finally, the study finds that family firms with different ownership structures selfselect in terms of risk-taking behaviour. Family firms with more concentrated ownership self-select towards lower risk. In conclusion, our study finds that family firms take on less risk than non-family firms in Norway.