Academic journal article The Journal of Consumer Affairs

Attitude toward Risk and Risk-Taking Behavior of Business-Owning Families

Academic journal article The Journal of Consumer Affairs

Attitude toward Risk and Risk-Taking Behavior of Business-Owning Families

Article excerpt

Using data from the 1995 Survey or Consumer Finances, this study round that family business owners are more risk tolerant than nonowners. Among family business owners, age, race, net worth, and the number or employees in the business affect risk-taking attitudes and behavior. In addition, the following factors arc associated with risk-taking behaviors: number or years of ownership, gross sales, who started the business, and sole proprietorship. Education influences risk-taking attitudes.

Approximately 11 percent of all U.S. families owned privately held business interests in the 1990s (Kennickell, Starr-McCluer, and Surette 2000). Using a broad definition of family business, these family businesses contribute nearly 50 percent of the gross domestic product, 59 percent of the workforce, and 78 percent of new jobs in the economy (Shaker and Astrachan 1996). Risky decisions made by these family business owners have a profound impact on the goods and services consumed by business-owning families and consumers who are employed or not employed by these businesses. Business-owning families are unique because their family and business resources are often intermingled, and the family often has a substantial financial capital investment in a relatively risky venture, a family business (Haynes and Avery 1997). Therefore, the risk that family business owners could tolerate is a critical factor in financial planning for the business and family.

Risk tolerance is one of the key concepts in economics and finance. This concept is usually measured by the attitude toward risk or risk-taking behavior. Previous studies have examined factors associated with an individual's risk tolerance (Sung and Hanna 1996; Schooley and Worden 1996; Jianakoplos and Bernasek 1998; Grable and Lytton 1998); however, no study has addressed the risk tolerance of family business managers. Second, previous researchers either openly state or imply that both entrepreneurs and managers of family businesses are risk takers compared to the general population (Masters and Meirer 1988), but no study has directly compared the two groups. Finally, most previous studies have focused on either risk-tolerance attitudes or behaviors but not on both attitudes and behavior. An exception is a study by Schooley and Worden (1996) that focused on risk tolerance behaviors and included the risk taking attitude as one of the independent variables. In an effort to fill these research gaps, this study has three objectives: (1) to compare family business owners and nono wners in terms of risk-caking attitudes and behavior, (2) to explore family and business characteristics associated with risk-taking attitudes and behavior of family business owners, and (3) to examine the consistency between risk-taking attitudes and behavior among family business owners.

Examining risk-taking attitudes and behavior among family business owners will increase the understanding of risk tolerance in general and add to the literature on this topic. Studying family business owners allows the researchers to examine unique variables that are only available from family business owners but have been ignored by previous studies. In addition, this study is the first attempt to study consumer behavior in the specific context of families in business. This approach, therefore, will lay a foundation for further development of theoretical and empirical models to study the interactions between the family and its economic environment. The findings can be used by researchers, practitioners, and educators in family and business economics and finance. This paper will review previous risk-tolerance literature, develop hypotheses based on the economic theory and previous studies, formulate data analysis strategies, and discuss the results and implications of this study.

LITERATURE REVIEW

Risk Tolerance

The identification of a person's risk tolerance is one of the essential components of the effective management of investment in both corporate and personal settings. …

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