Family ownership and risk-taking: Exploring nonlinear effects in financial industry

This study examined the relevance of the family ownership on risk-taking. Using a sample selected from publicly listed companies among the financial institutions in Taiwan during 1996 to 2007, this study found that the family ownership had a significant negative effect on risk-taking in the financial industry. Moreover, these influences were non-linear by the range of family ownership. In contrast, when securities and the insurance industry were the major family-controlled shareholders, the increase of its shareholding percentage was unexpected to positively affect risk-taking. These results were consistent with the “convergence-of-interest hypothesis” and were robust for several proxies of risk-taking in Taiwan’s financial industry, providing insights as to the effectiveness of regulatory discipline and capital market discipline of family businesses, and facilitating better legislative monitoring of financial activities in risk-taking.