Abstract
We construct an analytical framework to incorporate agency and stewardship perspectives, and the concept of socioemotional wealth (SEW), to analyse the effect of family participation on firm value and corporate risk-taking in Mexico. We find family firms enjoy higher value and tolerate higher levels of risk than non-family concerns. This differential becomes more important in more highly valued firms and more risk tolerant firms. Whereas the differential is also positively associated with the cash ownership of controlling families, the observed value/risk effects entrench at higher levels of family ownership (i.e. above 40%–50%). We test whether the risk-taking preference of family firms is a mixture of two types of risk, performance hazard risk, which captures the familial desire to preserve SEW; and venturing risk, which firms take in expectation of improving future performance. Family firms seem to take more performance hazard risk independently of their cash flow ownership, which suggests that family firms perceive patrimony as a means of safeguarding resources for heirs, which raises tolerance to performance hazard risk. Firm value increases when firms follow good corporate governance practices.
•We construct an analytical framework to incorporate agency and stewardship perspectives, and the concept of socioemotional wealth to determine the effect of family ownership on firm value and risk-taking.•The application is to Mexico as an example of a country where patrimony is perceived as a means to safeguard resources for heirs.•Family firms have greater value than non-family concerns, due in part to compliance with best practice corporate governance norms.•Family firms take a mixture of performance hazard risk and venturing risk.•Family firms assume performance hazard risk independently of their cash flow ownership, inferring that family firms view patrimony as a means of safeguarding resources for heirs, which raises tolerance to performance hazard risk.•Family firms also take greater venturing risk than non-family firms do.