Does corporate governance influence corporate risk-taking? Evidence from the Institutional Shareholders Services (ISS)

Pornsit Jiraporn, Pattanaporn Chatjuthamard, Shenghui Tong and Young Sang Kim

Finance Research Letters, 2015, vol. 13, issue C, 105-112

Abstract: We provide evidence on the effect of corporate governance on the extent of corporate risk-taking. Provided by the Institutional Shareholder Services (ISS), our governance metrics are among the most comprehensive in the literature. Our results show that firms with more effective governance exhibit corporate strategies that are significantly less risky. Left to their own devices, managers tend to take excessive risk. Effective governance, however, reduces the degree of risk-taking significantly. Exploiting the passage of the Sarbanes–Oxley Act of 2002 as an exogenous shock that improves governance quality, we show that the effect of corporate governance on risk-taking is likely causal.

Keywords: Corporate governance; Risk-taking; ISS; Institutional shareholder services; Agency theory (search for similar items in EconPapers)
JEL-codes: G30 G32 G34 G39 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:13:y:2015:i:c:p:105-112

DOI: 10.1016/j.frl.2015.02.007

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