Controlling Families' Risk Allocation in a Business Group

Abstract

This paper explores family business groups and their motivation for risk taking in each affiliate. We study whether the controlling family determines the level of risk taken by an affiliate in its business group based on the amount of family wealth that is invested in the affiliate. We find that the affiliates in which the controlling family has more (less) investment take less (more) risk. Our results indicate that the controlling family decides the riskiness of each affiliate based on the family’s interests at both the firm level and the business-group level.