CEO Risk-Taking and Socioemotional Wealth

The Behavioral Agency Model, Family Control, and CEO Option Wealth

Luis Gomez-Mejia, Ionela Neacsu, Geoffrey Martin

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

We combine behavioral agency and family business literature to analyze the role of dominant firm principals in constraining the managerial agent’s (CEO’s) response to equity-based pay. Behavioral agency research has made progress in understanding CEO risk behavior in response to equity-based incentives and family firm risk behavior driven by concentrated socioemotional and financial firm-specific risk bearing. However, both literatures have evolved independently, which has limited our understanding of how the risk bearing of agent and principal influences the predictions of the behavioral agency model (BAM). We combine these literatures in order to enhance BAM’s predictive validity with regard to firm risk-taking as a function of both agent and principal risk preferences. Our findings suggest that family principals are more likely than nonfamily principals to constrain CEO risk behavior that is perceived as immoderate (excessively risk averse or excessively risk seeking). We also offer evidence that CEO ties to the family influence the CEO’s response to equity-based incentives. In doing so, we offer refinements to BAM’s formulation and advance our understanding of the unique nature of agency problems within family firms.

Original languageEnglish (US)
Pages (from-to)1713-1738
Number of pages26
JournalJournal of Management
Volume45
Issue number4
DOIs
StatePublished - Apr 1 2019

Fingerprint

Agency model
Family control
Wealth
Chief executive officer
Socioemotional wealth
Risk taking
Equity
Incentives
Family firms
Firm risk
Risk seeking
Prediction
Dominant firm
Family influence
Family business
Risk preferences
Agency problems
Risk-averse
Predictive validity

Keywords

  • agent risk-taking
  • behavioral agency
  • family principal
  • mixed gamble
  • socioemotional wealth

ASJC Scopus subject areas

  • Finance
  • Strategy and Management

Cite this

CEO Risk-Taking and Socioemotional Wealth : The Behavioral Agency Model, Family Control, and CEO Option Wealth. / Gomez-Mejia, Luis; Neacsu, Ionela; Martin, Geoffrey.

In: Journal of Management, Vol. 45, No. 4, 01.04.2019, p. 1713-1738.

Research output: Contribution to journalArticle

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