When Do Founder CEOS Take More Risk than Professional CEOS? The Moderating Effects of Managerial Discretion

Abstract

To gain a better understanding in how the individual characteristics of CEOs influence firm strategic choice, we explore the relationship between founder CEOs and firm-level strategic risk-taking. We argue that founder-CEO-managed firms will engage in greater risk-taking than professional-CEO-managed firms. Additionally, drawing on the managerial discretion literature, we argue that factors at the individual, organizational, and environmental levels will moderate the relationship between founder status and firm risk taking. Our theoretical premise is that factors that increase managerial discretion — CEO ownership, CEO celebrity, market uncertainty, and market complexity — will positively moderate the relationship between founder-CEO-managed firms and strategic risk-taking. Conversely, factors that decrease managerial discretion — institutional ownership, and firm size — will negatively moderate the relationship between founder-CEO-managed firms and strategic risk-taking. We undertake our investigation within the context of US IPO firms during the 2000-2012 period. Analyses using panel data regressions show that all of our predictions are supported.