Managerial Empowerment and Firm Risk-Taking

Abstract

This study highlights the importance of political ties of top management on firm risk-taking preferences. This study divides the managerial powers into six categories and then tries to check the impact of those powers on firm risk-taking by considering internal and external input resources from 2011 to 2015. Interestingly, results show that firms with political ties are more risk-takers than nonpolitically connected firms. Managerial political ties empower them to control the internal and external resources of the firm and make them more authoritative to make investment decisions about risky projects. While expert power is the only source of authoritative decision-making power for managers regarding risk-taking in nonpolitically connected firms. These findings are of great importance for transitional economies, especially regarding Chinese unique business environment.