This study aims to examine the impact of family ownership and management on risk taking of Indian firms. We examine family firms’ approach to risk taking with respect to tax aggressiveness, accounting aggressiveness and pledging of promoter shareholders’ shareholding. Family firms take essential risk on indirect tax matters but desist from being aggressive on direct tax and accounting matters which reflect their concern for reputation. Based on a balanced panel of 1782 data points covering 297 firms, over the period 2013 to 2018, we examine family firms’ approach to risk taking on tax aggressiveness, accounting aggressiveness, R&D and capital investment and pledging of promoter shareholders’ shareholding. The multi-level mixed effects analysis confirms that family firms favor indirect tax aggressiveness but differentiate between indirect and direct tax aggressiveness, and do not choose accounting policies that improve book profits and result in temporary book-tax differences.
We further examine family firms’ pre-pledge scenario using the mixed gamble approach. Using the zero-inflated beta model which differentiates lack of dissent from positive assent, we find that family firms are not against pledging shares of the promoter shareholders. Status as family firm moderates business group impact on the pledge decision and the results confirm that family owned firms are not against pledging and prefer to take risks and pledge to exploit available opportunities. We further find that active family participation in management encourages pledging, but business group affiliated family firms discourage pledging.