Management Ownership and Risk-Shifting Investment

Nobuyuki Teshima
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Nobuyuki Teshima: School of Commerce, Senshu University, Japan

The Japanese Accounting Review, 2012, vol. 2, 75-85

Abstract: This study analyzes the relationship between management ownership and its risk-shifting incentive. We first present a simple model showing that the risk-shifting incentive of management of financially distressed firms increases as the management ownership of the firm increases. Empirically, we test the hypothesis that under the former Japanese Corporate Reorganization Law, firms with higher management ownership are more likely to use legal rather than private reorganization. Since the reorganization process under the law virtually eliminates the possibility of risk-shifting investment, creditors are more likely to prefer the legal process to private process, when management ownership is higher. Empirical results are consistent with the hypothesis.

Keywords: Management Ownership; Risk Shifting; Debt Restructuring; Reorganization; Bankruptcy (search for similar items in EconPapers)
JEL-codes: G32 G33 G34 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:kob:tjrevi:dec2012:v:2:p:75-85

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