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Corporate Risk-Taking and Ownership Structure

By Teodora Paligorova


This paper investigates the determinants of corporate risk-taking. Shareholders with substantial equity ownership in a single company may advocate conservative investment policies due to greater exposure to firm risk. Using large cross-country sample, I find a positive relation between corporate risk-taking and equity ownership of the largest shareholder. This result is entirely driven by investors holding equity ownership in more than one company, thus achieving better portfolio diversification compared to shareholders with a single ownership stake. Stronger legal protection of shareholder rights is associated with more risk-taking, while stronger legal protection of creditor rights reduces risk-taking

Topics: Key Words, Corporate Governance, Ownership Structure, Incentives
Year: 2009
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