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Corporate risk-taking: Exploring the effects of government affiliation and executives' incentives

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  • Ding, Shujun
  • Jia, Chunxin
  • Qu, Baozhi
  • Wu, Zhenyu

Abstract

A firm's risk-taking behavior can have powerful implications for its employees and shareholders, and even surrounding communities. Corporate risk-taking may associate with firms' affiliation with the government and the incentives of their highest-ranking executives, rather than with strategic choices calculated to maximize firm value. This study addresses a novel sample of Chinese firms, controls for a set of firm and manager characteristics, and finds that firms' political ranking significantly affects their corporate risk-taking behavior. This effect is strong among firms with younger managers, and becomes insignificant when the highest-ranking manager is near retirement age. The findings indicate that the political connections of the highest-ranking manager (i.e., whether the manager is a former or current government bureaucrat) do not independently affect corporate risk-taking. However, the interaction between political connections, the firm's political rank, and the manager's age can affect corporate risk-taking.

Suggested Citation

  • Ding, Shujun & Jia, Chunxin & Qu, Baozhi & Wu, Zhenyu, 2015. "Corporate risk-taking: Exploring the effects of government affiliation and executives' incentives," Journal of Business Research, Elsevier, vol. 68(6), pages 1196-1204.
    • Handle: RePEc:eee:jbrese:v:68:y:2015:i:6:p:1196-1204
    DOI: 10.1016/j.jbusres.2014.11.014
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