Which formula for corporate risk-taking around the world? Exploring happiness as the “black box”

Abstract

Purpose This paper examines how the degree of happiness affects corporate risk-taking and the moderating influence of family ownership of firms on this relationship. Design/methodology/approach The authors use an international sample of 17,654 firm-year observations from 24 countries around the world from 2008 to 2016. Findings Using the happiness index from the World Happiness Report developed by the United Nations Sustainable Development Solutions Network, the authors show that a country's overall happiness is negatively correlated with risk-taking behavior by firms. The findings are robust to an alternative measure of risk-taking by firms. Further analyses document that the negative influence of happiness on firm risk-taking is more pronounced for family-owned firms. Practical implications The paper is consistent with the notion that happier people are likely to be more risk-averse in making financial decisions, which, in turn, reduces corporate risk-taking. Originality/value This study contributes to the broad literature on the determinants of corporate risk-taking and the growing literature on the role of sentiment on investment decisions. The authors contribute to the current debate about family-owned firms by demonstrating that the presence of family trust strengthens the negative influence of happiness on corporate risk-taking, a topic that has been unexplored in previous studies.