CEO Risk-Taking and Socioemotional Wealth: The Behavioral Agency Model, Family Control, and CEO Option Wealth

2017 ◽  
Vol 45 (4) ◽  
pp. 1713-1738 ◽  
Author(s):  
Luis R. Gomez-Mejia ◽  
Ionela Neacsu ◽  
Geoffrey Martin
Keyword(s):  
Risk Behavior ◽  
Risk Taking ◽  
Family Firms ◽  
Family Influence ◽  
Firm Risk ◽  
Dominant Firm ◽  
Agency Model ◽  
Family Control ◽  
Unique Nature ◽  
Behavioral Agency

We combine behavioral agency and family business literature to analyze the role of dominant firm principals in constraining the managerial agent’s (CEO’s) response to equity-based pay. Behavioral agency research has made progress in understanding CEO risk behavior in response to equity-based incentives and family firm risk behavior driven by concentrated socioemotional and financial firm-specific risk bearing. However, both literatures have evolved independently, which has limited our understanding of how the risk bearing of agent and principal influences the predictions of the behavioral agency model (BAM). We combine these literatures in order to enhance BAM’s predictive validity with regard to firm risk-taking as a function of both agent and principal risk preferences. Our findings suggest that family principals are more likely than nonfamily principals to constrain CEO risk behavior that is perceived as immoderate (excessively risk averse or excessively risk seeking). We also offer evidence that CEO ties to the family influence the CEO’s response to equity-based incentives. In doing so, we offer refinements to BAM’s formulation and advance our understanding of the unique nature of agency problems within family firms.

CEO pay and family firm heterogeneity: A behavioral agency model perspective

2021 ◽  
pp. 234094442110517
Author(s):  
Carlos Fernández Méndez ◽  
Rubén Arrondo García ◽  
Shams Pathan
Keyword(s):  
Family Firms ◽  
Firm Heterogeneity ◽  
Jel Classification ◽  
Agency Model ◽  
Family Control ◽  
Listed Firms ◽  
Top Executives ◽  
Pay Disparity ◽  
Ceo Pay ◽  
Behavioral Agency

We study the effects of family control on CEO pay from the perspective of behavioral agency model (BAM), with particular focus on family firm’s generational stage and CEO family ties. Using a panel of Australian listed firms, we find that family firms present lower total and variable CEO pay, showing also less pay disparity between the CEO and other top executives. We also find that multi-generational family firms and those run by non-family CEOs offer higher total and variable CEO pay and present high pay disparity. The BAM and family’s aversion to socioemotional wealth loss can explain the effects of family control based on the pursuing of non-financial family goals. The decline of these goals derived from the aging of the firm and the hiring of external CEOs shape family control and should be considered in the design of executive compensation policies and by external parties when assessing their suitability. JEL CLASSIFICATION: G30; G32; G34; G38

scholarly journals Does family control reduce firm risk?

2015 ◽  
Vol 5 (1) ◽  
Author(s):  
Jose Luis Miralles-Marcelo ◽  
María del Mar Miralles-Quirós ◽  
Ines Lisboa
Keyword(s):  
Family Firms ◽  
Family Influence ◽  
Family Ownership ◽  
Firm Risk ◽  
Growth Opportunities ◽  
Family Control ◽  
The Family ◽  
Current Context ◽  
And Control ◽  
New Evidence

In the current context of instability and financial crisis, understanding firm risk is crucial. In this study we aim to assess firm risk differences between family and non-family firms. Furthermore we analyze the family control impact, measured by both the family ownership and the F-PEC scale, in firm risk. We provide new evidence from family firm studies since we not only analyze the risk topic, almost unexplored, but we also introduce the F-PEC scale, an alternative way to measure the family influence. Using Portuguese quoted firms during the 1999- 2012 period, we find that family influence and control do not impact firm risk. Moreover, the firm size, return and growth opportunities influence it. 

scholarly journals To Merge, Sell, or Liquidate? Socioemotional Wealth, Family Control, and the Choice of Business Exit

2019 ◽  
Vol 46 (8) ◽  
pp. 1342-1379 ◽  
Author(s):  
Francesco Chirico ◽  
Luis R. Gómez-Mejia ◽  
Karin Hellerstedt ◽  
Michael Withers ◽  
Mattias Nordqvist
Keyword(s):  
Agency Theory ◽  
Financial Distress ◽  
Family Firms ◽  
Matched Sample ◽  
Financial Returns ◽  
Socioemotional Wealth ◽  
Family Control ◽  
Privately Held Firms ◽  
Exit Options ◽  
Behavioral Agency

We take the perspective that considering the affective motives of dominant owners is essential to understanding business exit. Drawing on a refinement of behavioral agency theory, we argue that family-controlled firms are less likely than non-family-controlled firms to exit and tend to endure increased financial distress to avoid losses to the family’s socioemotional wealth (SEW) embodied in the firm. Yet, when confronted with different exit options and when performance heuristics suggest that exit is unavoidable, family firms are more likely to exit via merger, which we argue saves some SEW, although it is less satisfactory financially. In contrast, nonfamily firms are more likely to exit via sale or dissolution, options that are more prone to offer higher financial returns than mergers. Family and nonfamily firms thus show different orders of exit options. We find support for these arguments in a longitudinal matched sample of privately held firms.

Does Greater Risk-Bearing in Stock Option Compensation Reduce the Influence of Problem Framing On Managerial Risk-Taking Behavior?

2011 ◽  
Vol 23 (1) ◽  
pp. 185-201 ◽  
Author(s):  
Kimberly Sawers ◽  
Arnold Wright ◽  
Valentina Zamora
Keyword(s):  
Risk Taking ◽  
Stock Options ◽  
Stock Option ◽  
Money Stock ◽  
Agency Model ◽  
Problem Framing ◽  
Managerial Risk ◽  
Option Compensation ◽  
Behavioral Agency ◽  
Stock Option Compensation

ABSTRACT: We examine the extent to which the behavioral agency model reflects the relation between greater risk-bearing in stock option compensation and managerial risk-taking. The behavioral agency model predicts that managers with greater wealth at stake will avoid risky projects that threaten their wealth. This greater risk-bearing effect moderates the problem-framing effect, which predicts that loss-averse managers will be more (less) risk-taking when choosing among loss (gain) projects. Using a 2 × 2 between-subjects experiment with 108 M.B.A. students acting as managers, we find that managers are more risk-taking in the loss context than in the gain context when they have at-the-money stock options but not when they have wealth at stake through in-the-money stock options. Further, we find that managers with in-the-money stock options are less risk-taking than managers with at-the-money stock options in the loss context. These findings support the behavioral agency model prediction that greater risk-bearing in stock option compensation (moving from at-the-money stock options to in-the-money stock options) reduces the problem framing effect on risk-taking behavior, particularly when the firm faces a loss decision context. Our results point to the importance of considering the implications of risk-bearing in stock option compensation for managers choosing risky projects that affect firm value.

Not all Risk Taking is Born Equal: The Behavioral Agency Model and CEO's Perception of Firm Efficacy

2014 ◽  
Vol 54 (3) ◽  
pp. 483-498 ◽  
Author(s):  
Geoffrey Martin ◽  
Nathan Washburn ◽  
Marianna Makri ◽  
Luis R. Gomez-Mejia
Keyword(s):  
Risk Taking ◽  
Agency Model ◽  
Behavioral Agency

Takeover Premiums and Family Blockholders

2015 ◽  
Vol 29 (2) ◽  
pp. 214-230 ◽  
Author(s):  
Max P. Leitterstorf ◽  
Maximilian M. Wachter
Keyword(s):  
Family Firms ◽  
Agency Model ◽  
Listed Firms ◽  
Empirical Results ◽  
The Impact ◽  
Special Case ◽  
Behavioral Agency

Blockholders impact strategic firm decisions because they are better at monitoring managers than dispersed shareholder groups. Nevertheless, we do not sufficiently understand how preferences of different blockholder types impact strategic firm decisions. We discuss this in the context of takeover premiums offered for publicly listed firms. Prior studies have argued that managers are often tempted to offer excessively high premiums. Consistently, blockholders might better control managers and ensure lower premiums. To better understand the impact of blockholder preferences, we focus on the special case of family firms. Specifically, drawing on the behavioral agency model, we hypothesize that bidders with family blockholders offer lower premiums than bidders with other blockholders or bidders without blockholders. Our empirical results support our hypotheses based on a sample of 149 takeover offers.

The Bouchayers of Grenoble and French Industrial Enterprise, 1850–1970. By Robert J. Smith. Baltimore: The Johns Hopkins University Press, 2001. Pp. xix, 247. $42.50.

2003 ◽  
Vol 63 (1) ◽  
pp. 254-255
Author(s):  
Michael Miller
Keyword(s):  
Cultural History ◽  
Family Firms ◽  
Family Influence ◽  
Business Success ◽  
Business Outcomes ◽  
Family Control ◽  
Family Enterprise ◽  
Family Enterprises ◽  
French Firm ◽  
Family Leadership

Ever since David Landes's seminal work on the French family firm and the interplay of culture and economics, French business history has wrestled with the question of French particularism and the role of family enterprise in determining business outcomes. For well over a quarter of a century, historians have challenged or qualified Landes's arguments, first by pointing to successful family enterprises in France or elsewhere, second by reassessing French economic performance in modern times, and third by identifying other factors to explain slower growth in macro or micro terms. Robert J. Smith's thought-provoking study of Bouchayer et Viallet, a medium-sized French firm that rose and fell on family leadership and culture, squarely confronts, once again, the issue of family influence on business success and failure. Combining access to family papers with an astute appraisal of personality and context, Smith has produced a first-rate inquiry into the dynamics of family business firms. Mindful of the fact that family firms still account for a predominant part of GNP, but that few family firms continue as such for more than several generations, Smith asks how family control and values contributed to the success of Bouchayer et Viallet yet also braked growth at a middling level and ultimately undermined the continuity of the company. Intended as a case study in the trajectory of family enterprise, Smith weaves together business, family, and cultural history in exemplary ways that will benefit practitioners of all three fields and that demonstrate the value of the first approach for studying and writing the second and the third.

scholarly journals Family Business Growth Around the World

2020 ◽  
pp. 104225872091302 ◽  
Author(s):  
Ivan Miroshnychenko ◽  
Alfredo De Massis ◽  
Danny Miller ◽  
Roberto Barontini
Keyword(s):  
Growth Rates ◽  
Firm Growth ◽  
Family Firms ◽  
Theory And Practice ◽  
Family Influence ◽  
Business Growth ◽  
Family Control ◽  
The Impact ◽  
Positive Effect

Growth is important for the long-term success of a business. Regrettably, the impact of family influence on firm growth is largely neglected. We examine whether family firms have a higher growth rate than their nonfamily counterparts. Based on a large sample of firms across 43 countries over a 10-year period, we show that family firms on average have higher growth rates than nonfamily firms, and this positive effect is greater for family firms operating in strong national institutional environments which are less corrupt, more democratic, more subject to rule of law, and have effective government policies. We also find that the positive effect of family influence on firm growth varies significantly across different types of family firms and different business cycles. These findings show that family control has an economically significant impact on growth rates and important implications for both family firm theory and practice.

A Behavioral Agency Model of Managerial Risk Taking

1998 ◽  
Vol 23 (1) ◽  
pp. 133-153 ◽  
Author(s):  
Robert M. Wiseman ◽  
Luis R. Gomez-Mejia
Keyword(s):  
Risk Taking ◽  
Agency Model ◽  
Managerial Risk ◽  
Behavioral Agency
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