Strong financial regulation and corporate risk-taking: Evidence from a natural experiment in China

Qi Liu and Jiejie Wu

Finance Research Letters, 2023, vol. 54, issue C

Abstract: We use the difference-in-differences (DID) method to investigate the impact of strong financial regulation on corporate risk-taking via the issue of a capital control policy. Using a natural experiment, we find that strong financial regulation reduces both agency costs and risk-averse behavior among managers, which translates into an increased willingness to engage in high-risk investments. Our results provide evidence that strong financial regulation promotes corporate risk-taking. This positive effect persists after a series of robustness tests.

Keywords: Strong financial regulation; Corporate risk-taking (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:54:y:2023:i:c:s1544612323001204

DOI: 10.1016/j.frl.2023.103747

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