TY - JOUR
T1 - Corporate governance reform and risk-taking
T2 - evidence from a quasi-natural experiment in an emerging market
AU - Koirala, Santosh
AU - Neupane, Suman
AU - Thapa, Chandra
AU - Marshall, Andrew
PY - 2020/4
Y1 - 2020/4
N2 - Existing studies suggest that stricter Corporate Governance Reform (CGR) reduces corporate risk-taking, primarily due to higher compliance costs and expanded liabilities of insiders or managers. We revisit the relationship between CGR and risk-taking in an emerging market set-up characterized by weaker market forces of corporate scrutiny and greater insider ownership, which encourages firms to pursue investment conservatism. Using a quasi-natural experiment, we find that stricter CGR leads to greater corporate risk-taking. We further show that risk-taking is an important channel through which CGR enhances firm value. Our findings support the view that stricter CGR can have a positive effect on corporate risk-taking and corporate investment decisions in an evolving regulatory environment.
AB - Existing studies suggest that stricter Corporate Governance Reform (CGR) reduces corporate risk-taking, primarily due to higher compliance costs and expanded liabilities of insiders or managers. We revisit the relationship between CGR and risk-taking in an emerging market set-up characterized by weaker market forces of corporate scrutiny and greater insider ownership, which encourages firms to pursue investment conservatism. Using a quasi-natural experiment, we find that stricter CGR leads to greater corporate risk-taking. We further show that risk-taking is an important channel through which CGR enhances firm value. Our findings support the view that stricter CGR can have a positive effect on corporate risk-taking and corporate investment decisions in an evolving regulatory environment.
KW - Corporate governance reform
KW - Emerging market
KW - Quasi-natural experiment
KW - Risk-taking
UR - http://www.scopus.com/inward/record.url?scp=85052888059&partnerID=8YFLogxK
U2 - 10.1016/j.jcorpfin.2018.08.007
DO - 10.1016/j.jcorpfin.2018.08.007
M3 - Article
SN - 0929-1199
VL - 61
JO - Journal of Corporate Finance
JF - Journal of Corporate Finance
M1 - 101396
ER -