The role of institutional investors in propagating the 2007 financial crisis in Southern Europe

José María Díez-Esteban, Jorge Bento Farinha and Conrado Diego García-Gómez

Research in International Business and Finance, 2016, vol. 38, issue C, 439-454

Abstract: The 2007 financial crisis has affected Southern European companies (Spanish, Portuguese, Italian and Greek) more than others. From a Minskyan bubble-burst cycle perspective (Minsky, 1986), we study the relation between institutional ownership structure and corporate risk-taking for a sample of non-financial listed companies from Spain, Portugal, Italy and Greece for the period 2001–2014. Our results suggest that the financial deregulation process, that lead to the financialization of the world economy before the 2007 financial crisis and the favourable macroeconomic scenario encouraged corporate risk-taking in those countries. We also find that the lack of effective control mechanisms provided an incentive for investment funds to assume a proactive role, encouraging companies to overinvest in risky projects.

Keywords: Risk-taking; Financial deregulation; Crisis; Institutional investors (search for similar items in EconPapers)
JEL-codes: G15 G32 G34 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:38:y:2016:i:c:p:439-454

DOI: 10.1016/j.ribaf.2016.07.006

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