Strategic Risk-Taking Propensity: The Role of Ethical Climate and Marketing Output Control Amit Saini Kelly D. Martin ABSTRACT. In the wake of the current financial crises triggered by risky mortgage-backed securities, the ques- tion of ethics and risk-taking is once again at the front and center for both practitioners and academics. Although risk-taking is considered an integral part of strategic decision-making, sometimes firms could be propelled to take risks driven by reasons other than calculated strategic choices. The authors argue that a firm’s risk-taking pro- pensity is impacted by its ethical climate (egoistic or benevolent) and its emphasis on output control to manage its marketing function. The firm’s long-term orientation is argued to moderate the control–risk propensity rela- tionship. The authors also extend research on risk and performance and argue that the association of risk-taking propensity and firm performance is contingent on the ownership (publicly traded versus privately held) structure of the firm. Based on survey data from a sample of manufacturing industries in the United States, the results show significant impact of ethical climate and marketing output control on a firm’s risk-taking propensity; also risk-taking propensity shows a stronger association with firm performance in privately held firms than in publicly traded firms. KEY WORDS: risk, risk-taking propensity, ethical cli- mate, long-term orientation, output control, publicly traded, privately held The areas of strategic risk-taking and ethics have become increasingly entwined and have received growing research attention (Drennan, 2004; Francis and Armstrong, 2003). If corporate failures of Enron and WorldCom brought new attention to ethics and risk-taking, the recent financial melt- down of risky mortgage-backed securities that were utilized to finance sub-prime mortgages (Andrews, 2007) has only added to the sense of urgency to understand the relationship between ethics and risk. While risk-taking has always been part of the strategic tapestry (Baird and Thomas, 1985), sometimes firms could be driven to make riskier choices simply because stakeholder interests are increasingly linked to firm performance. Indeed, firms’ willingness to take significant risks can create costs for their employees, customers, shareholders, and even the communities in which they reside. When viewed through this lens, a firm’s risk-taking propensity can have powerful ethical implications and considerations. Grounded in this logic, we explore the impact of two organizational factors as drivers of a firm’s risk-taking propensity (a) the ethical climate of the firm and (b) the extent to which the firm manages its marketing function through output control. Although a number of different factors have been studied in terms of their impact on a firm’s risk-taking behaviors, such as outcome history (Sitkin and Pablo, 1992; Sitkin and Weingart, 1995), problem framing (Sitkin and Weingart, 1995), entrepreneurship (Brockhaus, 1980), and past performance (Miller and Bromiley, 1990), to the best of our knowledge the relationship between a firm’s ethical environment, its marketing control mechanism, and its risk-taking propensity has not been investigated. Ethical climate captures the reasoning within a firm that provides ethics-related normative guidelines to individuals (Victor and Cullen, 1987, 1988). Given that strategic risk-tak- ing is laden with expectations of high returns for the firm and individual decision-makers, we focus on the effects of egoistic (where norms support maximizing self-interest) and benevolent (where Journal of Business Ethics (2009) 90:593–606 Ó Springer 2009 DOI 10.1007/s10551-009-0063-7