Overconfidence and risk behavior in family firms

This study proposes an original theoretical contribution on the risk behavior of family firms. Traditionally, individual decision making is deemed to have a strong influence on the risk behavior of an organization, in the sense that firm’s choices are biased by individual characteristics. In non-family firms, the responsibility for the risk behavior of the company only depends on managers. By contrast, in family businesses there is an interplay between biases of those family members actually controlling the company and top managers choices. Whilst the agency theory offers an effective explanation of the relationship between the agent and the principal, the family business stream of research still lacks of such a theory, able to explain the impact of the principal behavior on the organization’s risk propensity. Our study aims to tackle this huge and relevant gap. We study how the risk propensity of family firms is influenced by those family members who are in direct control of the company (e.g. by participating of the board of directors)