When Do Founder CEOs Take More Risk than Professional CEOs? The Moderating Effects of Managerial Discretion

Posted: 22 Feb 2016

See all articles by Joon Mahn Lee

Joon Mahn Lee

Purdue University - Krannert School of Management

Jongsoo Kim

Hong Kong Baptist University

Gerry McNamara

Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management

Date Written: February 19, 2016

Abstract

To gain a better understanding in how the individual characteristics of CEOs influence firm strategic choice, we explore the relationship between founder CEOs and firm-level strategic risk-taking. We argue that founder-CEO-managed firms will engage in greater risk-taking than professional-CEO-managed firms. Additionally, drawing on the managerial discretion literature, we argue that factors at the individual, organizational, and environmental levels will moderate the relationship between founder status and firm risk taking. Our theoretical premise is that factors that increase managerial discretion — CEO ownership, CEO celebrity, market uncertainty, and market complexity — will positively moderate the relationship between founder-CEO-managed firms and strategic risk-taking. Conversely, factors that decrease managerial discretion — institutional ownership, and firm size — will negatively moderate the relationship between founder-CEO-managed firms and strategic risk-taking. We undertake our investigation within the context of US IPO firms during the 2000-2012 period. Analyses using panel data regressions show that all of our predictions are supported.

Keywords: Founder CEO, risk-taking, managerial discretion, corporate governance, IPO firms

Suggested Citation

Lee, Joon Mahn and Kim, Jongsoo and McNamara, Gerry, When Do Founder CEOs Take More Risk than Professional CEOs? The Moderating Effects of Managerial Discretion (February 19, 2016). Available at SSRN: https://ssrn.com/abstract=2735232 or http://dx.doi.org/10.2139/ssrn.2735232

Joon Mahn Lee (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Jongsoo Kim

Hong Kong Baptist University ( email )

Kowloon Tong
HKBU road
Hong Kong, 00000
Hong Kong
85255615891 (Phone)

Gerry McNamara

Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management ( email )

East Lansing, MI 48824-1121
United States

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