Socioemotional Wealth and Business Risks in Family-Controlled Firms: Evidence from Spanish Olive Oil Mills

This paper challenges the prevalent notion that family-owned firms are more risk averse than publicly owned firms. Using behavioral theory, we argue that for family firms, the primary reference point is the loss of their socioemotional wealth, and to avoid those losses, family firms are willing to a...

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Bibliographic Details
Published in:	Administrative science quarterly 2007-03, Vol.52 (1), p.106-137
Main Authors:	Gómez-Mejía, Luis R., Haynes, Katalin Takács, Núñez-Nickel, Manuel, Jacobson, Kathyrn J. L., Moyano-Fuentes, José
Format:	Article
Language:	eng
Subjects:	Administrative science Aggregate supply Agricultural Enterprises Behavior Business management Business risks Business structures Business studies Companies Cooperation Decision making Emotions Endowments Families & family life Family Businesses Family firms Family owned businesses Food processing industry Hypotheses Investment risk Management science Modeling Oils & fats Olive oil Organizational Behavior Ownership Petroleum Referents Risk Risk aversion Spain Wealth
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Summary:	This paper challenges the prevalent notion that family-owned firms are more risk averse than publicly owned firms. Using behavioral theory, we argue that for family firms, the primary reference point is the loss of their socioemotional wealth, and to avoid those losses, family firms are willing to accept a significant risk to their performance; yet at the same time, they avoid risky business decisions that might aggravate that risk. Thus, we propose that the predictions of behavioral theory differ depending on family ownership. We confirm our hypotheses using a population of 1,237 family-owned olive oil mills in Southern Spain who faced the choice during a 54-year period of becoming a member of a cooperative, a decision associated with loss of family control but lower business risk, or remaining independent, which preserves the family's socioemotional wealth but greatly increases its performance hazard. As shown in this study, family firms may be risk willing and risk averse at the same time.
ISSN:	0001-8392 1930-3815