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Article
Publication date: 23 August 2022

Basim Alzugaiby

The existing literature, generally based on US data, provides little evidence that supports whether managerial ability directly links to corporate risk-taking. Hence, this…

Abstract

Purpose

The existing literature, generally based on US data, provides little evidence that supports whether managerial ability directly links to corporate risk-taking. Hence, this study aims to expand the limited extent by investigating the impact of managerial ability on risk-taking across Saudi firms.

Design/methodology/approach

This study mainly uses a panel fixed-effects model, including firm-year and firm-industry, to analyse a sample of Saudi non-financial firms from the period 2008 – 2018. In the empirical analysis, the managerial ability is lagged by one year to mitigate endogeneity concerns that may arise from reverse causality. To avoid omitted variables bias, this study includes several firm-level control variables.

Findings

The empirical results show that the relationships between managerial ability and firm risk-taking measures are negative and statistically significant with the standard deviation of return on assets (sROA) and leverage; positive and statistically significant with the Z-score. These results indicate that firms managed by high-ability executives have the propensities to take less risk. The main results remain robust to additional sensitivity analyses including an alternative measure for managerial ability, an alternative proxy for risk-taking using logistic regression analysis, using financial crises as dummy variables, and using a cross-lagged panel model with fixed effects for endogeneity concerns.

Practical implications

When evaluating firms, all market and society participants including researchers, regulators, supervisors, policymakers, and boards ought to pay close attention to managerial ability as one of the main factors affecting risk-taking.

Originality/value

Previously, closely related studies, focussing on the US market, mainly find that managers with high ability are receptive to risk-taking. This paper offers further international insight into the relevant literature by providing evidence that capable managers are inclined to take low risks.

Details

Managerial Finance, vol. 48 no. 9/10
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 29 June 2022

Prachi Gala and Saim Kashmiri

This study aims to examine the effect of chief executive officer (CEO) integrity on organizations’ strategic orientation. The authors propose that CEOs who have high…

Abstract

Purpose

This study aims to examine the effect of chief executive officer (CEO) integrity on organizations’ strategic orientation. The authors propose that CEOs who have high degrees of integrity tend to negatively influence each of the three core dimensions of entrepreneurial orientation (EO) – innovativeness, proactiveness and risk-taking. They also argue that this impact of CEO integrity is likely to be stronger for overconfident CEOs and the CEOs with high power. Furthermore, this negative relationship is expected to attenuate when the firm has high customer orientation and when the CEO is compensated with high equity-pay ratio.

Design/methodology/approach

Seemingly unrelated regression analysis was conducted on panel of 741 firm-year observations of 213 firms across 2014–2017. CEO integrity and each of the three dimensions of EO were measured using content analysis of CEOs’ letters to shareholders. CEO power was measured using CEO stock ownership and CEO duality. CEO overconfidence was measured by using options-based measure. Customer orientation was measured by using content analyses on annual reports. CEO equity-pay based ratio was measured as sum of value of stock and option awards divided by CEO’s total compensation. This study considered alternative measures and performed treatments for potential endogeneity, sample selection bias and outliers.

Findings

The research findings conclude that organizations with CEOs who have high integrity tend to have lower levels of all sub-dimensions of EO – innovativeness, proactiveness and risk-taking. Further, the results indicate that the negative effect that CEO integrity has, affects one of its dimensions – proactiveness, such that the relation is strengthened when the CEO has high power and is highly overconfident. This negative effect weakens when the CEO is compensated with high equity-pay ratio. The results also indicate that the negative effect of integrity and innovativeness and risk-taking weakens when the firm has high customer orientation.

Research limitations/implications

The research contributes to upper echelon theory literature by adding to the discussion of how business executives’ psychological traits map onto firm behavior. This research also finds common ground between literature on innovation and upper echelons, contributing to awareness about the drivers of firms’ EO.

Practical implications

This research addresses the question of firm relation to EO by highlighting that firms’ EO is also shaped by the psychological traits of their CEOs and the interaction of these traits with CEOs’ cognitive biases. Thus, board members of firms led by CEOs with high integrity can limit CEO’s risk-averse behavior by focusing on their training and by creating incentive systems. It is also advantageous for CEOs to understand that integrity is a double-edged sword, thus leveraging the strengths of their integrity, while simultaneously using tools such as training to diminish its negative aspects.

Originality/value

This paper fulfils a twofold identified need to: study the antecedents of each of the three dimensions of EO, not limited to corporate governance; and unearth the counterproductive behaviors associated with bright traits that make up their dark side

Book part
Publication date: 8 July 2010

Esra Memili, Kimberly A. Eddleston, Thomas M. Zellweger, Franz W. Kellermanns and Tim Barnett

Drawing on organizational identity theory, we develop a model linking family ownership and expectations, entrepreneurial risk taking, and image in family firms to explain…

Abstract

Drawing on organizational identity theory, we develop a model linking family ownership and expectations, entrepreneurial risk taking, and image in family firms to explain family firm growth. Testing our model on a sample of 163 Swiss family firms, we suggest that entrepreneurial risk taking and image can both lead to growth in family firms. We further find that family expectations have an influence on both entrepreneurial risk taking and family firm image. This finding suggests that family firms may benefit from two growth paths – forward looking risk taking and the image of the family firm that builds on the past, and that these paths are nurtured by family expectations.

Details

Entrepreneurship and Family Business
Type: Book
ISBN: 978-0-85724-097-2

Book part
Publication date: 4 December 2012

Zangina Isshaq, Godfred A. Bokpin and Benjamin Amoah

Purpose – This paper examines the interaction of efficiency and bank risk taking in the Ghanaian banking industry.Design/methodology/approach – We relate risk taking to…

Abstract

Purpose – This paper examines the interaction of efficiency and bank risk taking in the Ghanaian banking industry.

Design/methodology/approach – We relate risk taking to price competitiveness, foreign ownership and cost efficiency and other control variables. Cost-inefficiency scores from a stochastic frontier model are used, and a Lerner price index is employed to proxy for market power.

Findings – Our results suggest that market power affects risk taking when conditioned on foreign ownership, but foreign bank risk-taking behaviour is not statistically different from local banks. Cost inefficiency diminishes bank soundness. We also find that industry concentration discourages greater risk taking.

Originality/value – Our study extends the views on risk taking and competition among banks in Ghana, which throws more light from an emerging economy perspective.

Details

Finance and Development in Africa
Type: Book
ISBN: 978-1-78190-225-7

Keywords

Article
Publication date: 10 June 2022

Nadia Loukil and Ouidad Yousfi

The current paper studies how CEO attributes could influence corporate risk-taking. The authors examine the effects of CEO demographic attributes and CEO position's…

Abstract

Purpose

The current paper studies how CEO attributes could influence corporate risk-taking. The authors examine the effects of CEO demographic attributes and CEO position's attributes on financial and strategic risk-taking.

Design/methodology/approach

This study is drawn on non-financial firms listed on the SBF120 index, between 2001 and 2013.

Findings

First, long-tenured CEOs are prone to decrease the total risk and the leverage ratio. Second, despite the many CEOs have political connections; they are not prone to engage in risky decisions not serving the business' interests. Third, old CEOs are likely to rely on debt to fund internal growth. Moreover, business and science-educated CEOs behave differently in terms of risk-taking. Finally, the authors show that CEOs' attributes have less influential effects in family firms than in non-family firms. Also, they seem to have more significant associations with risk-taking during and after the financial subprime crisis.

Originality/value

This paper examines how cognitive traits could shape investments decisions, in terms of risk preferences.

Details

Asia-Pacific Journal of Business Administration, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1757-4323

Keywords

Book part
Publication date: 13 July 2016

Susan R. Fisk

The goal of this chapter is to both provide a sociological explanation for gender differences in risk-taking behavior and to explain how such gender differences in…

Abstract

Purpose

The goal of this chapter is to both provide a sociological explanation for gender differences in risk-taking behavior and to explain how such gender differences in behavior may contribute to women’s underrepresentation at the top of hierarchies.

Methodology/approach

I synthesize relevant research findings from the fields of social psychology, economics, psychology, decisions science, and sociology.

Originality/value

I argue that risk-taking is a gendered action due to both prescriptive and descriptive gender stereotypes. The fact that risk-taking is a gendered action offers sociological insights as to why women take fewer risks than men. First, women may rationally choose to take fewer risks, given that risk-taking is less rewarding for them. Second, the aforementioned gender stereotypes may cause institutional gatekeepers to give women fewer opportunities to take risks.

Sociologists should care about this phenomenon because large rewards are attached to successful risk-taking behavior. Thus, if men as a group take more successful risks than women as a group – simply because they take more risks, and thus by chance experience more successful risks – then more men than women will experience upward mobility caused by risk-taking.

Social implications

Gender differences in risk-taking behavior likely depress the upward mobility of women and are a contributing factor to the dearth of women in top positions. In this era of falling formal barriers and women’s educational gains, gender differences in risk-taking behavior are likely of increasing importance for understanding the inequalities in hierarchies in U.S. society.

Details

Advances in Group Processes
Type: Book
ISBN: 978-1-78635-041-1

Keywords

Open Access
Article
Publication date: 1 October 2021

Thao Phuong Tran and Anh-Tuan Le

This paper examines how the degree of happiness affects corporate risk-taking and the moderating influence of family ownership of firms on this relationship.

Abstract

Purpose

This paper examines how the degree of happiness affects corporate risk-taking and the moderating influence of family ownership of firms on this relationship.

Design/methodology/approach

The authors use an international sample of 17,654 firm-year observations from 24 countries around the world from 2008 to 2016.

Findings

Using the happiness index from the World Happiness Report developed by the United Nations Sustainable Development Solutions Network, the authors show that a country's overall happiness is negatively correlated with risk-taking behavior by firms. The findings are robust to an alternative measure of risk-taking by firms. Further analyses document that the negative influence of happiness on firm risk-taking is more pronounced for family-owned firms.

Practical implications

The paper is consistent with the notion that happier people are likely to be more risk-averse in making financial decisions, which, in turn, reduces corporate risk-taking.

Originality/value

This study contributes to the broad literature on the determinants of corporate risk-taking and the growing literature on the role of sentiment on investment decisions. The authors contribute to the current debate about family-owned firms by demonstrating that the presence of family trust strengthens the negative influence of happiness on corporate risk-taking, a topic that has been unexplored in previous studies.

Details

Journal of Asian Business and Economic Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2515-964X

Keywords

Article
Publication date: 3 February 2022

Ozgur Ozdemir and Ezgi Erkmen

The purpose of this study is to investigate the link between top management team (TMT) gender diversity and firm risk-taking in hospitality companies. The study also links…

Abstract

Purpose

The purpose of this study is to investigate the link between top management team (TMT) gender diversity and firm risk-taking in hospitality companies. The study also links female leadership to risk-taking. Finally, this study examines the moderating effects of TMT incentive pay and TMT age on the relationship between TMT gender diversity and firm risk-taking.

Design/methodology/approach

This study uses an unbalanced data set of 81 hospitality firms and 888 firm-year observations over the period of 1992–2020. The study uses fixed-effects regression estimation for primary analyses and addresses potential endogeneity concerns via two-stage least square regression with firm fixed-effects instrumental variable regression. Risk-taking is measured by total firm risk (i.e. the annualized volatility of daily stock returns). Main results are supported with alternative measures of firm risk and estimation methods.

Findings

The study finds that increasing TMT gender diversity leads to a reduction in firm risk-taking in the hospitality industry. Moreover, the study finds that hospitality firms led by a female CEO experience lower firm risk compared to firms led by a male CEO. Finally, the study finds evidence that the relationship between TMT gender diversity and firm risk is contingent on the level of incentive pay awarded to TMT members and the age of TMT members. Increasing incentive pay and aging executive teams decrease the risk reduction effect of TMT gender diversity.

Practical implications

The findings of this study recommend that firm risk-taking in the hospitality industry is related to gender diversity in TMTs. Hence, the board of directors should pay attention to gender composition for executive positions for risk management. Moreover, the results also suggest that care should be exercised when using incentive pay to align the interests of managers and shareholders. Finally, the board of directors needs to consider both gender diversity and age of the TMT members for TMT composition to manage executives’ risk-taking behavior.

Originality/value

This study fills a research gap in the hospitality literature by providing empirical evidence for the link between TMT gender diversity and firm risk-taking. Additionally, the study introduces incentive pay and age of TMT as contingency factors for the link between TMT gender diversity and firm risk-taking.

Details

International Journal of Contemporary Hospitality Management, vol. 34 no. 5
Type: Research Article
ISSN: 0959-6119

Keywords

Article
Publication date: 9 September 2021

Elisa Menicucci and Guido Paolucci

The purpose of this paper is to investigate the relationship between gender diversity and the risk profile of Italian banks during the period 2015–2019. This study…

Abstract

Purpose

The purpose of this paper is to investigate the relationship between gender diversity and the risk profile of Italian banks during the period 2015–2019. This study examines whether the presence of female board directors or top executives has any significant effect on bank risk-taking.

Design/methodology/approach

To explore the influence of women on bank risk-taking, the authors analyzed a sample of 387 Italian banks and developed an econometric model applying unbalanced panel data with firm fixed effects and controls per year. Within a multivariate regression model, the authors considered five risk dimensions to verify the effect of gender diversity.

Findings

The findings suggest that female board directors and executives are considerably more risk averse and less overconfident than their male colleagues, thus confirming a negative causality between risk-taking and gender diversity. The results reveal that banks headed by women are less risky because they report higher capital adequacy and equity to assets ratios. As credit risk in female-led banks is no different from male-led ones, higher capital adequacy does not derive from lower asset quality because it is linked to the higher risk aversion of female directors and top managers.

Research limitations/implications

From a theoretical standpoint, the results suggest that having women in executive positions entails different risk implications for Italian banks; from a managerial perspective, the results highlight conditions that may promote the role of women in the banking sector. The conclusions are of particular significance because they provide some support for the view that regulators should favor gender quotas in the board management of banks to reduce risk-taking behavior.

Originality/value

This paper offers an in-depth examination of the risk practices of banks and it attempts to bridge the gap in prior literature on the risk profile of the Italian banking industry given that few empirical studies have examined the determinants of risk-taking in this field, to date. The findings on the higher risk aversion of women directors advance the understanding of the determinants of risk-taking behavior in banks, suggesting that gender quotas in bank boards can contribute to reducing risk-taking behavior. This also unveils some policy implications for bank regulatory authorities.

Details

Corporate Governance: The International Journal of Business in Society, vol. 22 no. 2
Type: Research Article
ISSN: 1472-0701

Keywords

Article
Publication date: 29 April 2021

Eda Gurel, Melih Madanoglu and Levent Altinay

This longitudinal study assesses whether higher education has the same impact on the entrepreneurial intentions of women and men with regard to their propensity to risk

Abstract

Purpose

This longitudinal study assesses whether higher education has the same impact on the entrepreneurial intentions of women and men with regard to their propensity to risk-taking in particular.

Design/methodology/approach

A self-administrated survey instrument was used to collect data from students studying business and engineering at five selected universities in Turkey. The survey was carried out in two intervals: first year and fourth year of studies. A total of 215 student participated in both waves.

Findings

The findings indicate that the impact of education is stronger for women than for men as the relationship between gender and entrepreneurial intention is moderated by education and risk-taking propensity in that the entrepreneurial intention of women with high or low risk-taking propensity increases when they acquire higher education. In particular, the boost is more noticeable for women with low risk-taking propensity. On the contrary, the effect of education is negative for men with both high risk-taking propensity and low risk-taking propensity.

Practical implications

This study has identified that the impact of education is different for women and men. Based on these findings, Turkey could offer gender-specific entrepreneurship education in higher education for individuals who could then exploit their entrepreneurial capacity and thus contribute to the social and economic well-being of the country.

Originality/value

This paper makes two distinct contributions. First, this is one of the few longitudinal studies in the literature which demonstrates the differences between females and males in terms of their entrepreneurial intention and shows how risk-taking and education influence entrepreneurial intention. Second, it offers new insights into entrepreneurship research from a developing-country but emerging-economy context.

Details

Education + Training, vol. 63 no. 5
Type: Research Article
ISSN: 0040-0912

Keywords

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