Regional Investment Preference and Corporate Risk-Taking: Evidence from China

Junkai Wang, Baolei Qi and Muhammad Jameel Hussain ()
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Muhammad Jameel Hussain: Xi'an Jiaotong University, China

Journal of Developing Areas, 2023, vol. 57, issue 1, 275-293

Abstract: As an important part of corporate value, risk-taking has always been the focus of scholars. The existing research mainly focuses on the impact of corporate shareholders and managers' personal characteristics on corporate risk-taking, and few scholars study it from the perspective of regional environment. Based on the sample of Chinese A-share listed companies from 2006 to 2020, this paper empirically tests the impact of regional investment preferences on corporate risk-taking by using multiple regression methods; Then, the instrumental variables and propensity matching methods are used to test whether the main regression results have changed; Furthermore, this paper explores the mechanism of regional investment preference to reduce the level of corporate risk-taking; Finally, the impact of industry intensity and policy uncertainty on the main regression results will be tested in an expanded way. The research results show that the stronger the investment preference of the region where the company is located, the lower the company's risk-taking. After a series of robustness tests such as instrumental variable method and propensity score matching method, the main regression results of this paper remain unchanged. The mechanism test shows that regional investment preference can reduce managers' overconfidence and improve the quality of internal control, thereby reducing the level of corporate risk-taking. Further research shows that fierce industry competition and policy uncertainty can enhance the impact of regional investment preferences on corporate risk-taking. The research results not only enrich the research on the factors affecting enterprise risk-taking, but also deepen the theoretical understanding of the impact of the regional environment on corporate governance, which has certain reference significance for further improving corporate governance, optimizing corporate risk-taking and enhancing corporate value.

Keywords: Investment preference; Risk-taking; Overconfidence; Internal control (search for similar items in EconPapers)
JEL-codes: G34 M14 O16 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:jda:journl:vol.57:year:2023:issue:1:pp:275-293

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