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

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.