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Management Ownership and Risk-Shifting Investment

Author

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  • Nobuyuki Teshima

    (School of Commerce, Senshu University, Japan)

Abstract

This study analyzes the relationship between management ownership and its risk-shifting incentive. We first present a simple model showing that the risk-shifting incentive of management of financially distressed firms increases as the management ownership of the firm increases. Empirically, we test the hypothesis that under the former Japanese Corporate Reorganization Law, firms with higher management ownership are more likely to use legal rather than private reorganization. Since the reorganization process under the law virtually eliminates the possibility of risk-shifting investment, creditors are more likely to prefer the legal process to private process, when management ownership is higher. Empirical results are consistent with the hypothesis.

Suggested Citation

  • Nobuyuki Teshima, 2012. "Management Ownership and Risk-Shifting Investment," The Japanese Accounting Review, Research Institute for Economics & Business Administration, Kobe University, vol. 2, pages 75-85, December.
  • Handle: RePEc:kob:tjrevi:dec2012:v:2:p:75-85
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    File URL: https://www.rieb.kobe-u.ac.jp/tjar/article/vol2/pdf/4.Teshima.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Management Ownership; Risk Shifting; Debt Restructuring; Reorganization; Bankruptcy;
    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
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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