Corporate Risk-Taking, Foreign Institutional Ownership and the Role of Macro Corporate Governance

49 Pages Posted: 11 Mar 2014 Last revised: 7 Jan 2018

See all articles by Zhe An

Zhe An

Monash Business School; Financial Research Network (FIRN)

Donghui Li

Jinan University - Management School

Garland Huang

UNSW Business School

Sheng Xiao

Westminster College (Utah)

Date Written: May 1, 2016

Abstract

Using a large sample of 48,548 firms from 72 countries, we document a positive impact of foreign institutional ownership on corporate risk-taking. Further, foreign institutional ownership is found to be a substitute for macro corporate governance in determining corporate risk-taking. It supports the view that foreign institutional investors play stronger roles in motivating managers to take risks in countries with weaker corporate governance. In addition, we find foreign strategic investment ownership (i.e., with a disclosed holding above 5 percent of total number of shares outstanding) reduces the potential negative-side effect of corporate risk-taking, namely, stock price crash risk. Various robustness tests and careful considerations of endogeneity confirm our main conclusions.

Keywords: foreign institutional ownership, corporate risk-taking, macro corporate governance, stock price crash risk

JEL Classification: G32, G34

Suggested Citation

An, Zhe and Li, Donghui and Huang, Garland and Xiao, Sheng, Corporate Risk-Taking, Foreign Institutional Ownership and the Role of Macro Corporate Governance (May 1, 2016). Available at SSRN: https://ssrn.com/abstract=2406743 or http://dx.doi.org/10.2139/ssrn.2406743

Zhe An (Contact Author)

Monash Business School ( email )

Wellington Road
Clayton, Victoria 3168
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Donghui Li

Jinan University - Management School ( email )

No. 601, West Huangpu Road
Guangzhou, Guangdong 510632
China

Garland Huang

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Sheng Xiao

Westminster College (Utah) ( email )

1840 South 1300 East
Salt Lake City, UT 84105
United States

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