Do firms led by founders take higher risk?

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.