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Large Shareholder Diversification And Corporate Risk- Taking

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Listed:
  • Mara Faccio
  • Maria-Teresa Marchica
  • Roberto Mura

Abstract

Using new data for the universe of firms covered in Amadeus, we reconstruct the portfolios of shareholders who hold equity stakes in private and publicly-traded European firms. We find great heterogeneity in the degree of portfolio diversification across large shareholders. Exploiting this heterogeneity, we document that firms controlled by diversified large shareholders undertake riskier investments than firms controlled by non-diversified large shareholders. The impact of large shareholder diversification on corporate risk-taking is both economically and statistically significant. Our results have important implications at the policy level because they identify one channel through which policy changes aimed at improving capital market development can improve economic welfare.

Suggested Citation

  • Mara Faccio & Maria-Teresa Marchica & Roberto Mura, 2010. "Large Shareholder Diversification And Corporate Risk- Taking," Purdue University Economics Working Papers 1241, Purdue University, Department of Economics.
    • Handle: RePEc:pur:prukra:1241
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    More about this item

    Keywords

    Risk-taking choices; Large shareholders; Portfolio diversification;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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