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

Santosh Koirala, Andrew Marshall, Suman Neupane () and Chandra Thapa

Journal of Corporate Finance, 2020, vol. 61, issue C

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.

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)
Date: 2020
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DOI: 10.1016/j.jcorpfin.2018.08.007

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