An Analysis of Risk-Taking in Family Firms Listed in B3

Voelcker, Gabriel; Macagnan, Clea Beatriz; Vancin, Daniel

doi:10.15728/bbr.2020.17.4.3

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Article • BBR, Braz. Bus. Rev. 17 (4) • Jul-Aug 2020 • https://doi.org/10.15728/bbr.2020.17.4.3 copy

An Analysis of Risk-Taking in Family Firms Listed in B3

Authorship SCIMAGO INSTITUTIONS RANKINGS

ABSTRACT

This work analyses the statistical relationship between family firms and risk-taking. It seeks to contribute to the growing literature on family firms by reviewing the literature on the characteristics that distinguish them from non-family firms, aiming to innovate by approaching a less-used construct for this type of firm: risk-taking. The literature on both constructs is reviewed, using theoretical and empirical works to develop the following research hypothesis: tfamily firms are more averse to risk-taking than non-family firms. This hypothesis is tested empirically using econometrics procedures in a sample with 1188 observations from publicly traded companies listed on B3. The results indicate that the presence of family firms negatively affect risk-taking. Thus, it can be concluded that family firms seem to be less prone to risk-taking than non-family firms.

KEYWORDS
Family firms; Risk-taking; Decision-making

Variable	Equation	References	Theoretical Reason
Size	Natural Logarithm of Total Assets of firm at t.	Zahra 2005Zahra, S. A. (2005). Entrepreneurial risk taking in family firms. Family Business Review, 18(1), 23-40. ; Chrisman & Patel, 2012Chrisman, J. & Patel, P. (2012). Variations in R&D investments of family and nonfamily firms: behavioral agency and myopic loss aversion perspectives. The Academy of Management Journal, 55(4), 976-997.; Vancin & Procianoy, 2016Vancin, D. F.; Procianoy, J. L. (2016). Os fatores determinantes do pagamento de dividendos: o efeito do obrigatório mínimo legal e contratual nas empresas brasileiras. Revista Brasileira de Finanças, 14(1), 89-123. .	The larger the firm, the more likely it is to resist change and innovation.
Performance	Ratio between net income and equity.	Zahra, 2005Zahra, S. A. (2005). Entrepreneurial risk taking in family firms. Family Business Review, 18(1), 23-40. ; Faccio, Marchica, & Mura, 2011Faccio, M.; Marchica, M.-T.; Mura, R. (2011). Large shareholder diversification and corporate risk-taking. The Review of Financial Studies, 24(11), 3601-3641..	A recent successful track record would inhibit managers from pursuing risky entrepreneurial activities given their satisfaction with the firm’s situation.
Board	Number of board members.	Goodstein, Gautam, & Boeker, 1994Goodstein, J., Gautam, K., & Boeker, W. (1994). The effects of board size and diversity on strategic change. Strategic management journal, 15(3), 241-250. e Zahra et al., 2004Zahra, S. A.; Hayton, J. C.; Salvato, C. (2004). Entrepreneurship in family vs. non-family firms: A resource-based analysis of the effect of organizational culture. Entrepreneurship theory and Practice, 28(4), 363-381. .	It is considered more difficult to make risky decisions when the quorum that decide is higher.
External	Ratio between the number of external directors and the existing total.	Anderson & Reeb, 2003Anderson, R. C.; Reeb, D. M. (2003) Founding-family ownership and firm performance: evidence from the s&p 500. The Journal Of Finance, 58(3), 1301-1328. e Chen & Hsu, 2009Chen, H.-L. & Hsu, W.-T. (2009) Family ownership, board independence, and r&d investment. Family Business Review, 22(4), 347-362.	This feature influences how much management is monitored and allows the inclusion of views of members outside the firm’s routine.
Opportunities	Sum of market value and debt divided by total assets.	Smith & Stulz, 1985Smith, C. W., & Stulz, R. M. (1985). The determinants of firms’ hedging policies. Journal of financial and quantitative analysis, 20(4), 391-405.; Kammler & Alves, 2009Kammler, E. L., & Alves, T. W. (2009). Análise da capacidade explicativa do investimento pelo q de Tobin em empresas brasileiras de capital aberto. RAE eletrônica, 8(2). http://dx.doi.org/10.1590/S1676-56482009000200007 http://dx.doi.org/10.1590/S1676-56482009... e Belkhir & Chazi, 2010Belkhir, M., & Chazi, A. (2010). Compensation vega, deregulation, and risk‐taking: Lessons from the US banking industry. Journal of Business Finance & Accounting, 37(9‐10), 1218-1247..	The more investment opportunities, the more the firm would tend to get involved with new projects and would be backed by risk-taking.
Liquidity	Cash Flow divided by Total Assets.	Chen & Hsu, 2009Chen, H.-L. & Hsu, W.-T. (2009) Family ownership, board independence, and r&d investment. Family Business Review, 22(4), 347-362.; Muñoz-Bullón & Sanchez-Bueno, 2011Muñoz-Bullón, F., & Sanchez-Bueno, M. J. (2011). The Impact of Family Involvement on the R&D Intensity of Publicly Traded Firms. Family Business Review, 24(1), 62–70..	It is expected that the more liquidity the firm has, the more predisposed it will be to take risks, and vice versa.
Age	Number of years since foundation.	Dickinson, 2011Dickinson, V. (2011). Cash flow patterns as a proxy for firm life cycle. The Accounting Review, 86(6), 1969-1994. e Faccio, Marchica & Mura, 2011Faccio, M.; Marchica, M.-T.; Mura, R. (2011). Large shareholder diversification and corporate risk-taking. The Review of Financial Studies, 24(11), 3601-3641..	The risk-taking level is expected to decrease with the firm’s age.
Return	Share price in t divided by the price in t-1 minus one.	Kuang & Qin, 2013Kuang, Y. F.; Qin, B. (2013). Credit ratings and CEO risk-taking incentives. Contemporary Accounting Research, 30(4), 1524-1559. e Elsilä, 2015Elsilä, A. (2015). Trade Credit Risk Management: The Role of Executive Risk‐Taking Incentives. Journal of Business Finance & Accounting, 42, 1188-1215.	Higher risk companies, on average, should have higher returns.

Year	Family Firms	% FF	Non-Family Firms	%NFF	Total
Panel A: Fam1 criterion
2010	92	39,48%	141	%NFF	Total	60,52%	233
2011	78	33,62%	154	66,38%	232
2012	77	32,22%	162	67,78%	239
2013	93	38,91%	146	61,09%	239
2014	91	37,14%	154	62,86%	245
Total	431	36,28%	757	63,72%	1188
Panel B: Fam2 criterion
2010	97	41,63%	136	63,72%	1188	58,37%	233
2011	82	35,34%	150	64,66%	232
2012	80	33,47%	159	66,53%	239
2013	96	40,17%	143	59,83%	239
2014	94	38,37%	151	61,63%	245
Total	448	37,79%	740	62,21%	1188

Statistic	Min.	1º Q.	Median	Mean	3º Q.	Max.	σ
Risk-Taking	0.004	0.046	0.077	0.601	0.308	28.108	0.449
Size	0.699	5.549	6.238	5.996	6.724	8.899	1.336
Performance	-56.11	0.006	0.089	-0.07	0.185	29.476	24.832
Board	1	7	13	14.27	19	52	11.68
External	0.000	0.000	0.034	0.093	0.167	1	0.112
Opportunities	0.000	0.381	0.718	1.18	1.22	57.819	5.326
Liquidity	-21.0	0.018	0.083	-0.072	0.143	3.174	0.005
Age	0.0	13	31	37.63	57	144	8.764
Return	-84.27	-14.905	0.000	2.147	11.131	502.311	27.43

Variables	Mean FF	Mean NFF	p-value
Size	6.234	5.736	0.000
Performance	0.081	0.061	0.538
Board	14.789	13.299	0.005
External	0.099	0.075	0.001
Opportunities	1.249	0.730	0.002
Liquidity	0.051	-0.109	0.000
Age	41.266	36.366	0.004
Return	0.046	0.325	0.879

	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
Variables
Fam1	-99.34***	-99.31***	-93.05***	-93.48***
	(-5.40)	(-5.46)	(-5.12)	(-5.21)
Fam2					-89.72***	-87.28***	-83.51***	-81.59***
					(-4.82)	(-4.74)	(-4.54)	(-4.49)
Performance	0.05	0.03	0.02	0.01	0.04	0.03	0.02	0.01
	(1.39)	(0.90)	(0.63)	(0.21)	(1.33)	(0.85)	(0.57)	(0.16)
Size	-0.16***	-0.07**	-0.11***	-0.02	-0.16***	-0.08**	-0.11***	-0.02
	(-5.64)	(-2.29)	(-3.69)	(-0.72)	(-5.63)	(-2.37)	(-3.67)	(-0.77)
Board	1.32**		1.13**		1.27**		1.07*
	(2.29)		(1.96)		(2.18)		(1.86)
1^st Quartile		168.12***		171.41***		163.42***		167.32***
		(5.43)		(5.64)		(5.26)		(5.49)
2^nd Quartile		34.47		50.61*		32.15		48.76*
		(1.26)		(1.87)		(1.17)		(1.80)
3^rd Quartile		13.63		27.49		11.32		25.67
		(0.53)		(1.08)		(0.44)		(1.01)
External	-0.50	-0.41	-0.41	-0.33	-0.51*	-0.42	-0.42	-0.34
	(-1.64)	(-1.34)	(-1.35)	(-1.12)	(-1.68)	(-1.38)	(-1.37)	(-1.14)
Opportunities	0.01	0.03	-0.01	0.01	0.01	0.02	-0.01	0.00
	(0.47)	(0.87)	(-0.19)	(0.23)	(0.43)	(0.82)	(-0.24)	(0.17)
Liquidity	-0.32***	-0.30***	-0.27***	-0.26***	-0.32***	-0.30***	-0.27***	-0.26***
	(-9.32)	(-8.81)	(-7.22)	(-6.96)	(-9.32)	(-8.81)	(-7.22)	(-6.97)
Age	-1.47***	-1.29***			-1.50***	-1.32***
	(-5.28)	(-4.64)			(-5.37)	(-4.77)
Introduction			-241.91***	-229.11***			-245.43***	-233.14***
			(-7.29)	(-6.98)			(-7.38)	(-7.08)
Growth			-186.61***	-170.48***			-189.22***	-173.62***
			(-6.25)	(-5.77)			(-6.33)	(-5.86)
Maturation			-183.15***	-168.80***			-184.90***	-170.89***
			(-6.43)	(-5.99)			(-6.48)	(-6.05)
Decline			-109.22**	-106.53**			-113.33**	-110.43**
			(-2.37)	(-2.35)			(-2.46)	(-2.43)
Return	0.01	0.01	0.02	0.01	0.01	0.01	0.02	0.01
	(0.31)	(0.18)	(0.41)	(0.29)	(0.31)	(0.19)	(0.42)	(0.30)
2011	-29.56	-27.53	-34.50	-32.92	-28.75	-26.51	-33.92	-32.14
	(-1.05)	(-0.99)	(-1.24)	(-1.20)	(-1.02)	(-0.95)	(-1.22)	(-1.17)
2012	-36.29	-40.15	-52.91*	-56.40**	-34.89	-38.34	-51.89*	-55.05**
	(-1.30)	(-1.45)	(-1.91)	(-2.07)	(-1.25)	(-1.39)	(-1.87)	(-2.01)
2013	16.42	24.24	-6.58	3.38	17.22	24.94	-6.35	3.48
	(0.58)	(0.87)	(-0.24)	(0.12)	(0.61)	(0.90)	(-0.23)	(0.13)
2014	30.61	40.56	1.08	12.77	31.55	41.42	1.30	12.87
	(1.09)	(1.46)	(0.04)	(0.46)	(1.12)	(1.49)	(0.05)	(0.46)
Constant	1,055.53***	734.85***	1,808.07***	1,399.75***	1,045.74***	734.35***	1,810.82***	1,410.57***
	(21.87)	(6.74)	(13.80)	(8.78)	(21.51)	(6.69)	(13.78)	(8.82)
Observations	1,188	1,188	1,188	1,188	1,188	1,188	1,188	1,188
R²	0.2240	0.2475	0.2468	0.2691	0.2201	0.2428	0.2432	0.2648

	Coef	Robust Std. Err.	z	p > \|z\|	[95% CI]
Fam1	97,83	22,38	-4,37	0,000	-141,70	-53,98
Fam2	-97,05	21,84	-4,44	0,000	-139,86	-54,25

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[1] gvoelcker@gmail.com