Firms’ risk-taking for customers’ benefit and its relevance with performance relative to aspiration

Abstract

We focus on firms’ risk-taking for customers and investigate how this type of risk-taking is influenced by “performance relative to aspiration” (PRA). Specifically, we examine the PRA and project-financing (PF) loan activities of all 79 savings banks in South Korea from 2013 to 2021. Contrary to the prevalent prediction that risk-taking increases with negative PRA, we demonstrate that banks with a more positive PRA take higher risk through PF loans. This suggests that a more positive PRA has given banks the freedom of action to pursue a social-based goal of small business support, which has been neglected by management as less important than their most important goal of pursuing their own profit. Furthermore, unlike the dominant idea that family firms are more risk-averse than non-family firms, we find that when PRA is positive, family firms engage in risky actions more actively for their customers than non-family counterparts. In other words, banks with better PRA take more risk to provide financial opportunities to their customers and this type of risk-taking is more pronounced for family firms. Implications and future research are discussed.