Family Ownership, ESG Strategies, and Corporate Risk-Taking: Econometric and Machine Learning Evidence

The present study aims to contribute to the exploration of the combined effect of sustainability strategies and family governance on corporate risk-taking, with a focus on the temporal dimension of ESG engagement and the multidimensional nature of family involvement. Although a number of research papers have attempted to investigate the interrelations between ESG performance, corporate risk, and ownership structure, the existing research is fragmented, static, and limited in terms of its research methodology. Therefore, this article aims to provide a framework that (a) distinguishes between long-term and short-term ESG performance and (b) distinguishes between ownership incentives and management control in family firms. The present study uses a sample of listed corporations and combines three different research methods: fixed effects panel regressions, cluster analysis, and machine learning regression methods. The results of this study suggest that long-term ESG performance is negatively related to corporate risk, as proxied by the volatility of operating performance. The effect of short-term ESG performance on corporate risk is less robust and less consistent. Furthermore, this study finds that family cash-flow rights and family CEOs are negatively related to corporate risk, in accordance with the SEW hypothesis. Finally, this study reveals that the positive interaction effect of long-term ESG performance and family cash-flow rights mitigates the negative effect of sustainability on corporate risk in family-controlled corporations. The results of this study show that cluster analysis reveals a high degree of heterogeneity in corporate strategic profiles, with different clusters characterized by specific configurations of ESG orientation, family involvement, corporate governance structure, firm size, and corporate risk. The results of this study also show that the proposed model has a high predictive power in relation to corporate risk levels, as indicated by the results of the random forest regression analysis. Finally, this study reveals that financial fundamentals are more important in determining corporate risk than ESG engagement and family control; however, ESG engagement and family control are secondary but significant and nonlinear determinants of corporate risk.