Reputational risk and firm performance: Family versus nonfamily firms in different regulatory environments

Abstract

This paper explores the relationship between reputational risk and firm financial performance in both family and nonfamily businesses. Relying on an international sample of over 5,000 listed firms from 2007 to 2019, we find that family firms have significantly lower reputational risk, and the impact of reputational risk on financial performance is lower in family firms. However, these findings vary across different macro-regulatory environments. In countries with poor regulatory quality, the effect of reputational risk on performance becomes positive, and family firms strengthen this positive influence. We attribute the findings to socioemotional wealth (SEW) theory and rent-seeking theory.