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Strong financial regulation and corporate risk-taking: Evidence from a natural experiment in China

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  • Liu, Qi
  • Wu, Jiejie

Abstract

We use the difference-in-differences (DID) method to investigate the impact of strong financial regulation on corporate risk-taking via the issue of a capital control policy. Using a natural experiment, we find that strong financial regulation reduces both agency costs and risk-averse behavior among managers, which translates into an increased willingness to engage in high-risk investments. Our results provide evidence that strong financial regulation promotes corporate risk-taking. This positive effect persists after a series of robustness tests.

Suggested Citation

  • Liu, Qi & Wu, Jiejie, 2023. "Strong financial regulation and corporate risk-taking: Evidence from a natural experiment in China," Finance Research Letters, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:finlet:v:54:y:2023:i:c:s1544612323001204
    DOI: 10.1016/j.frl.2023.103747
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    Cited by:

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    2. Cao, Xiyang & Ni, Jian & Wang, Fei & Xu, Yue, 2023. "Does customer concentration affect corporate risk-taking? Evidence from China," Finance Research Letters, Elsevier, vol. 58(PA).
    3. Qin, Yi & Nguyen, Duc Khuong & Cifuentes-Faura, Javier & Zhong, Kaiyang, 2023. "Strong financial regulation and corporate bankruptcy risk in China," Finance Research Letters, Elsevier, vol. 58(PB).

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