Organizational risk aversion: Comparing the public and non-profit sectors

Conventional wisdom of 'sector matters' suggests that those working in the government are more risk averse than those employed by business enterprises. However, whether public sector workers tend to be more risk averse than non-profit sector workers is unknown. Our paper examines whether the levels of organizational risk aversion as perceived by managers differ between public and non-profit organizations and explore reasons leading to this potential difference. Statistical results show that organizational risk aversion is more pervasive in the public sector than in the non-profit sector. Mediation tests further indicate that managerial trust and an organization's formalized rule constraints in rewarding good performers and removing poor performers are decisive to this difference. The findings imply that the top management's feeling of insecurity and structural reasons embedded in the merit system are the keys to organizational risk aversion in the public sector.