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Can We Afford It? Reference Point Dependent Investment Decisions of Family and Nonfamily Owners

Dianne Welsh & Thomas Zellweger

abstract This study focuses on an issue particularly relevant in these difficult financial times. Can family businesses afford the risk associated with making investments that could generate higher returns? Studies examining financing behavior of family firms report higher control risk aversion than nonfamily firms, whereby control risk is measured through leverage levels. We found that family firm owners\' degree of control risk aversion depends on reference points. Investment alternatives implying higher leverage levels become significantly more attractive to family owners when considered from a secure reference point with low leverage levels, than when the same investment alternatives are assessed from a less secure reference point with higher leverage levels. Implications are discussed
   
type working paper (English)
   
keywords Family firms, behavioral finance, reference points
   
project Value and Performance in Family Firms
date of appearance 2010
publisher Allied Academies, Whitney Press
ISSN 1087-9595
review double-blind review
   
citation Welsh, D., & Zellweger, T. (2010). Can We Afford It? Reference Point Dependent Investment Decisions of Family and Nonfamily Owners: Allied Academies, Whitney Press.