Family ownership and risk: the role of family managers

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