*4.2. Risk Exposure*

In this section of our study, we prove the risk exposure of family businesses by applying the Altman Z-score, a predictive model developed to evaluate the possibility of a firm going bankrupt in the subsequent years and to measure the overall financial health of companies (Altman et al. 2013; Altman and Hotchkiss 2006). We run five regressions for the leverage analysis in Tables 3 and 4.

Table 5 shows the positive significance of family orientated businesses as independent variables of the Z-score at the 5% level. These results suggest that a family-oriented business is actually healthier than its counterpart.


**Table 5.** Altman Z-Score Regression.

"The variables for the analyzed sample of 888 firms and 7104 firm-year observations of unlisted small and medium size firms over the period 2007–2014 includes risk exposure and is measured using the Altman Z-score. Profitability measure refers to the return of equity, return on assets, EBITDA margin, and net income margin. Size measure refers to number of employees, total revenues, and total assets. Age is calculated based on the company's date of establishment. Also, family firm denotes a dummy taking the value 1 if the firm has a family or individual with 25% or more voting rights and zero otherwise (SABI of the Bureau Van Dijk). \*\*\*, \*\*, \* illustrate significance at the 1%, 5%, and 10% level respectively". Source: Authors elaboration.

We further examine the cross-influence of family business age and size on risk exposure. Specifically, the cross-influence of family business age and size on risk exposure is positive and statistically significantly at the 5% level. The positive sign shows the relationship between age and size to risk exposure. Following the Altman Z-Score, "to check the bankruptcy situation of these firms, Altman and Hotchkiss (2006) and Ntoung et al. (2016b) matched a correspondencebetween the Standard and Poor's rating and the score, which makes the model reliable and consistent" (Ntoung et al. 2017). Therefore, the higher the Z-Score, the lowerthe possibility ofa firm being categorized in the distress zone, and this suggests that, at any size and age, family firms are less risky than their counterpart firms.

In addition, regressions 3, 4 and 5 "exclude some of the controlling variables and include some combination of interaction variables between size and family, profitability and family, and age and family" and are positive and statistically significant at the 5% level. This result confirms the results obtained in the first and second regressions.These regressions using different combinations of variables indicate positive coefficients for the family dummy on debt. The results of these regressions illustrate that family firms are actually less risky than their counterpart firms. This result is consistent with several prior research papers which examined the characteristics of family-controlled businesses. One possible reason for this could be that family ownership and control is the responsible for most family businesses adopting a more risk averse structure and the tendency to avoid high risk activities. These results support the hypothesis 2 that family owned companies are less risky than non-family firms (see Table 5).
