Corporate governance reform and risk-taking: evidence from a quasi-natural experiment in an emerging market

Santosh Koirala, Andrew Marshall, Suman Neupane, Chandra Thapa

Research output: Contribution to journalArticle

9 Citations (Scopus)
11 Downloads (Pure)

Abstract

Existing studies suggest that stricter Corporate Governance Reform (CGR) reduces corporate risk-taking, primarily due to higher compliance costs and expanded liabilities of insiders or managers. We revisit the relationship between CGR and risk-taking in an emerging market set-up characterized by weaker market forces of corporate scrutiny and greater insider ownership, which encourages firms to pursue investment conservatism. Using a quasi-natural experiment, we find that stricter CGR leads to greater corporate risk-taking. We further show that risk-taking is an important channel through which CGR enhances firm value. Our findings support the view that stricter CGR can have a positive effect on corporate risk-taking and corporate investment decisions in an evolving regulatory environment.
Original languageEnglish
Article number101396
JournalJournal of Corporate Finance
Volume61
Early online date22 Aug 2018
DOIs
Publication statusPublished - 30 Apr 2020

Keywords

  • corporate governance reform
  • quasi-natural experiment
  • emerging market
  • risk taking

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