CEO Incentives, Socioemotional Wealth and Risk Taking Among Founder and Family Firms



We integrate behavioral agency and socioemotional wealth literature to analyze the role of dominant firm principals in the managerial agent’s (CEO’s) response to equity-based pay. We combine these literatures in order to enhance the behavioral agency model’s (BAM’s) predictive validity with regard to firm risk-taking as a function of both agent and principal risk preferences.

We argue that founders’ and family owners’ risk behavior is driven by concentrated socioemotional and financial firm-specific risk bearing. Our theory and empirical findings suggest that CEOs of family and founder firms are less likely than CEOs of non-family and nonfounder firms to respond to incentives created by stock options.