Corporate governance reform and risk-taking: Evidence from a quasi-natural experiment in an emerging market
Suman Neupane () and
Journal of Corporate Finance, 2020, vol. 61, issue C
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.
Keywords: Corporate governance reform; Risk-taking; Emerging market; Quasi-natural experiment (search for similar items in EconPapers)
JEL-codes: G32 G34 G38 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:61:y:2020:i:c:s092911991830138x
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