Corporate governance reform and risk-taking: Evidence from a quasi-natural experiment in an emerging market

By Santosh Koirala, Andrew Marshall, Suman Neupane. Journal of Corporate Finance, 2020

140 citations recorded by the source corpus.

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.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/5d75c776e21c79d0c5e52dde304b892a7346e8d5