Controlling shareholders and investment-risk sensitivity in an emerging economy

Daniel Ferreira Caixe, Aquiles Elie Guimarães Kalatzis and Luiz Ricardo Kabbach de Castro

Emerging Markets Review, 2019, vol. 39, issue C, 133-153

Abstract: In this paper, we investigate the role of agency conflicts between controlling and minority shareholders on the investment-risk relationship. Using panel data from 412 Brazilian firms between 1997 and 2010, we show that investment is less sensitive to idiosyncratic risk for companies in which the largest shareholder presents higher levels of ownership-control divergence. Dual-class shares are the main driver of the lower investment sensitivity to idiosyncratic risk. Board independence does not affect controlling shareholders' behavior toward risky investments. Our findings are consistent with entrenchment effects in the sense that dominant shareholders may select riskier projects when pursuing self-interest goals.

Keywords: Investment decisions; Idiosyncratic risk; Ownership-control divergence; Agency problems; Emerging economy (search for similar items in EconPapers)
JEL-codes: C23 D81 G30 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:39:y:2019:i:c:p:133-153

DOI: 10.1016/j.ememar.2019.04.002

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