TY - JOUR

T1 - The effect of family control on value and risk-taking in Mexico: A socioemotional wealth approach

AU - Poletti-Hughes, Jannine

AU - Williams, Jonathan

PY - 2019/5

Y1 - 2019/5

N2 - We construct an analytical framework to incorporate agency and stewardship perspectives, and the concept of socioemotional wealth (SEW), to analyse the effect of family participation on firm value and corporate risk-taking in Mexico. We find family firms enjoy higher value and tolerate higher levels of risk than non-family concerns. This differential becomes more important in more highly valued firms and more risk tolerant firms. Whereas the differential is also positively associated with the cash ownership of controlling families, the observed value/ risk effects entrench at higher levels of family ownership (i.e. above 40%-50%). We test whether the risk-taking preference of family firms is a mixture of two types of risk, performance hazard risk, which captures the familial desire to preserve SEW; and venturing risk, which firms take in expectation of improving future performance. Family firms seem to take more performance hazard risk independently of their cash flow ownership, which suggests that family firms perceive patrimony as a means of safeguarding resources for heirs, which raises tolerance to performance hazard risk. Firm value increases when firms follow good corporate governance practices.

AB - We construct an analytical framework to incorporate agency and stewardship perspectives, and the concept of socioemotional wealth (SEW), to analyse the effect of family participation on firm value and corporate risk-taking in Mexico. We find family firms enjoy higher value and tolerate higher levels of risk than non-family concerns. This differential becomes more important in more highly valued firms and more risk tolerant firms. Whereas the differential is also positively associated with the cash ownership of controlling families, the observed value/ risk effects entrench at higher levels of family ownership (i.e. above 40%-50%). We test whether the risk-taking preference of family firms is a mixture of two types of risk, performance hazard risk, which captures the familial desire to preserve SEW; and venturing risk, which firms take in expectation of improving future performance. Family firms seem to take more performance hazard risk independently of their cash flow ownership, which suggests that family firms perceive patrimony as a means of safeguarding resources for heirs, which raises tolerance to performance hazard risk. Firm value increases when firms follow good corporate governance practices.

KW - Mexico; family firms; socioemotional wealth; corporate governance; performance; risk-taking.

U2 - 10.1016/j.irfa.2017.02.005

DO - 10.1016/j.irfa.2017.02.005

M3 - Article

VL - 63

SP - 369

EP - 381

JO - International Review of Financial Analysis

JF - International Review of Financial Analysis

SN - 1057-5219

ER -