"CEO Risk Taking in Family Firms: The Behavioral Agency Model, Family Control and CEO Option Wealth"

We apply the behavioral agency model (BAM) and the concept of mixed gambles to analyze the inter-play between the managerial agent (CEO) and family principals as precursors of firm risk taking. Our findings suggest that the CEOs’ attempts to preserve their (current) option wealth or pursue additional (prospective) wealth through risky strategic choices will be constrained by the family principal’s desire to maintain control over the firm’s strategic decisions. We draw upon theory of social exchange to argue that long tenured CEOs are more likely to coalesce with family goals as opposed to pursuing their own opportunistic agenda. Finally, we demonstrate that firm size attenuates the socioemotional impact upon family firm motivation for inter-generational control. Our study enhances knowledge regarding the unique nature of agency problems within family firms and refines the BAM’s formulation by demonstrating the role of ownership structure in frameworks predicting agent risk taking.