| Summary: | Purpose: The relationship between risk to return has been widely analysed in the scope of listed companies. However present literature leaves uncovered an important study area with regards to privately held firms. In order to cover this gap, this study analyses the risk-return trade-off in the context of private enterprises. Furthermore, we incorporate the contingent effect of being a family firm on the abovementioned relationship.
Design/methodology/approach: Using information from the SABI (Sistema de Análisis de Balances Ibéricos) database, a sample of 2,297 private manufacturing firms were analysed for the period of 2009-2016. So as to ascertain the proposed hypotheses, dynamic panel data methodology was applied. Specifically, we estimated the two-step general method of moments (GMM).
Findings: The obtained findings reveal that, according to prospect theory arguments, privately held firms adopt a conservative attitude toward risk when results are higher than a target level, while becoming risk seeking when results are lower than a target level. Moreover, the fact of being a family firm softens the risk-return relationship both when performance is above the target level and also when firms find themselves in the lowest performing case.
Originality/value: This article is, to the best of the authors’ knowledge, one of the first studies dealing with the risk-return relationship in a privately held firm context. Moreover, the inclusion of being a family firm as a contingent factor in the abovementioned link is a complete novelty.
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