TY - JOUR
T1 - Corporate governance reform and risk-taking
T2 - evidence from a quasi-natural experiment in an emerging market
AU - Koirala, Santosh
AU - Marshall, Andrew
AU - Neupane, Suman
AU - Thapa, Chandra
PY - 2020/4/30
Y1 - 2020/4/30
N2 - 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.
AB - 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.
KW - corporate governance reform
KW - quasi-natural experiment
KW - emerging market
KW - risk taking
UR - https://www.sciencedirect.com/journal/journal-of-corporate-finance
U2 - 10.1016/j.jcorpfin.2018.08.007
DO - 10.1016/j.jcorpfin.2018.08.007
M3 - Article
SN - 0929-1199
VL - 61
JO - Journal of Corporate Finance
JF - Journal of Corporate Finance
M1 - 101396
ER -