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Do firms led by founders take higher risk?

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  • Edward Lawrence
  • Yuka Nishikawa
  • Arun Upadhyay

Abstract

This study examines whether firms led by founder‐CEOs are significantly different from firms led by nonfounder‐CEOs in terms of the nature of their risk. Our results show that founder‐led firms are associated with higher operational but lower financial risk. We find that the differential nature of risk‐taking in founder‐CEO firms is driven by CEO's influence, their propensity of removal, and the probability of bankruptcy of the firm. While CEO‐chair duality and the sensitivity of founder‐CEO firm's probable bankruptcy play significant roles in determining the level of financial risk, the sensitivity of founder‐CEOs to forced turnover leads to higher operational risk.

Suggested Citation

  • Edward Lawrence & Yuka Nishikawa & Arun Upadhyay, 2024. "Do firms led by founders take higher risk?," The Financial Review, Eastern Finance Association, vol. 59(3), pages 687-717, August.
    • Handle: RePEc:bla:finrev:v:59:y:2024:i:3:p:687-717
    DOI: 10.1111/fire.12388
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