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Does corporate governance influence corporate risk-taking? Evidence from the Institutional Shareholders Services (ISS)

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  • Jiraporn, Pornsit
  • Chatjuthamard, Pattanaporn
  • Tong, Shenghui
  • Kim, Young Sang

Abstract

We provide evidence on the effect of corporate governance on the extent of corporate risk-taking. Provided by the Institutional Shareholder Services (ISS), our governance metrics are among the most comprehensive in the literature. Our results show that firms with more effective governance exhibit corporate strategies that are significantly less risky. Left to their own devices, managers tend to take excessive risk. Effective governance, however, reduces the degree of risk-taking significantly. Exploiting the passage of the Sarbanes–Oxley Act of 2002 as an exogenous shock that improves governance quality, we show that the effect of corporate governance on risk-taking is likely causal.

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  • Jiraporn, Pornsit & Chatjuthamard, Pattanaporn & Tong, Shenghui & Kim, Young Sang, 2015. "Does corporate governance influence corporate risk-taking? Evidence from the Institutional Shareholders Services (ISS)," Finance Research Letters, Elsevier, vol. 13(C), pages 105-112.
    • Handle: RePEc:eee:finlet:v:13:y:2015:i:c:p:105-112
    DOI: 10.1016/j.frl.2015.02.007
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    12. Kumari Ranjita & Kumar Nishant, 2020. "Ownership Structure and the Risk: Analysis of Indian Firms," Acta Universitatis Sapientiae, Economics and Business, Sciendo, vol. 8(1), pages 39-52, October.
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    14. AlHares, Aws & Ntim, Collins & King, David, 2018. "Block Ownership and Companies' R&D Intensity: The Moderating Effect Of Culture," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 15(2), pages 19-32.
    15. Kun Su & Liuchuang Li & Rui Wan, 2017. "Ultimate ownership, risk-taking and firm value: evidence from China," Asia Pacific Business Review, Taylor & Francis Journals, vol. 23(1), pages 10-26, January.
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    19. Tuan Ho & Duc N. Phung & Yen N. Nguyen, 2021. "State ownership and corporate risk‐taking: Empirical evidence in Vietnam," Australian Economic Papers, Wiley Blackwell, vol. 60(3), pages 466-481, September.

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    More about this item

    Keywords

    Corporate governance; Risk-taking; ISS; Institutional shareholder services; Agency theory;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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