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CEO age and risk-taking of family business in Malaysia: The inverse S-curve relationship

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Abstract

The relationship between CEO age and corporate risk-taking has remained inconclusive after decades of research. This study contends that CEO may have different risk-taking propensities at different age stages and the relationship could be better captured by nonlinear function. Using a large sample of 6169 firm-year observations of public listed companies in Malaysia, we study the risk-taking behaviour of CEO for the period of 2009 to 2017. We find that CEO age has an inverse U-shaped relationship, such that risk-taking increases with CEO age but reduces beyond certain age threshold. Besides, drawing on socioemotional wealth perspective, we further examine the moderating effect of family CEO. We find that near-retirement family CEO reverses the conservative behaviour at old age and results an inverse S-curved relationship. Findings of this paper yields implication for family business and policymakers seeking to encourage risk-taking behaviour in emerging countries.

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Notes

  1. https://www.accaglobal.com/hk/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/rd.html

  2. The turning points is the CEO age that optimizes the quadratic equation. It is calculated using the following formula: LogCEOAge turning point = − (1/2) (coef(LogCEOAge)/coef(LogCEOAge2)), where coef() denotes the regression coefficients (only if statistically significant) of variables LogCEOAge and LogCEOAge2obtained from the estimation of a given model.

  3. The turning points of a cubic function are calculated as follows: Assuming all other variables are constant and denoting LogCEOAge by x: R&D = 28.625x – 7.326x2 + 0.620x3. The turning points are found by differentiating y (R&D) with respect to x, letting \( \partial y/\partial x=0 \) and solving for x. To determine whether x is a maximum or minimum turning point, calculate the value of ∂2y/∂x2. If ∂2y/∂x2 > 0, the turning point is a maxima, if ∂2y/∂x2 < 0, the turning point is a minima.

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The authors are grateful to Universiti Sains Malaysia for the financial support through the Research University Grants (1001/PMGT/8016091).

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  1. School of Management, Universiti Sains Malaysia, 11800, Penang, Malaysia

    Siew-Boey Yeoh & Chee-Wooi Hooy

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Yeoh, SB., Hooy, CW. CEO age and risk-taking of family business in Malaysia: The inverse S-curve relationship. Asia Pac J Manag 39, 273–293 (2022). https://doi.org/10.1007/s10490-020-09725-x

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