Family Firms and Risk Taking: Does the Integration of ESG Practices Matter?
Description
We employ this dataset to examine the evolving risk-taking behavior of family firms and the role of ESG integration in mitigating excessive risk-taking. Precisely, we test the following hypotheses: H1: Family firms tend to take greater risks than non-family firms. H2: ESG integration has a greater impact on reducing risk-taking behavior in family firms than in non-family firms. Our sample comprises non-financial A-share firms listed on the Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE) from 2010 to 2020. The observation year starts from 2010 due to limited voluntary disclosure of social responsibility reports prior to that. We exclude (1) financial firms and (2) special treatment (ST and *ST) firms with suspension or delisting risk to control for variations in risk characteristics, (3) firms with fewer than three years of observations for risk-taking estimation, and (4) observations with missing values. The final sample includes 3,830 firms, totaling 26,151 firm-year observations: 2,409 family firms (14,928 firm-year observations) and 1,421 non-family firms (11,223 firm-year observations). We collect firm-level financial data from the China Stock Market and Accounting Research (CSMAR) database, while ESG data are from Sino-Securities Index Information Service (Shanghai) Co., Ltd. To control for potential bias due to extreme values, we winsorize the observed continuous variables at 1% and 99%. Our results show that ESG adoption significantly reduces risk-taking in family firms by improving internal control quality, governance transparency, and reducing financial constraint, thereby strengthening overall corporate resilience. Robustness tests confirm these findings, while heterogeneity analysis reveals variations across firm life cycles, ownership structures, and industry contexts. Overall, ESG serves as a crucial governance mechanism, balancing strategic risk-taking with long-term sustainability in family firms.
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