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Impact of Financial Liberalization on Firm Risk

Author

Listed:
  • Chong-Chuo Chang

    (Department of Banking and Finance College of Management, National Chi Nan University)

  • Oshamah Lin Lin

    (Department of Banking and Finance Newhuadu Business School, Minjiang University)

  • Oshamah Yu-Cheng Chang

    (Department of Leisure and Recreation Management College of Management, Asia University)

  • Oshamah Kun-Zhan Hsu

    (Department of Banking and Finance College of Management, National Chi Nan University)

Abstract

[Purpose] This study investigates the impact of financial liberalization on firm risk and examines the relationship between liberalization and firm risk from a global perspective by using three different measures of financial liberalization to analyze the entire sample as well as four different subsamples by using firms from different countries as our samples. [Design/methodology/approach] We use the pooled ordinary least squared (OLS) regression model and a series of robustness checks to conduct our analysis by using our sample that includes 63 countries, 18,317 firms, and 161,317 firm-year observations from 1991–2017. [Findings] Our empirical analysis concludes that financial liberalization has a significantly negative effect on firm risk. Following a series of robustness checks, we find that the results remain unchanged after categorizing our sample into subsamples according to the level of financial liberalization, controlling for changes in the economic development status, and dividing the sample periods based on the time of the financial crises. Moreover, the quantile regression reveals the asymmetric effect of financial liberalization on firm risk. The findings of our study contribute to a clear perception of how financial liberalization affects firm risk. [Practical Implications] The findings of our paper give suggestions to multinational corporations regarding the proper management of corporate finance in response to adjustments in financial liberalization policies. [Originality/value] In this paper, we use the data from multination to know clearly how different countries respond to the financial liberalization policies which may affect the firm risk. Then, we conduct a series of robustness checks to make sure that our result is robust. According to the result, we can see that the negative significant relationship between financial liberalization and firm risk remains unchanged after categorizing our sample into subsamples according to the level of financial liberalization, controlling for changes in the economic development status, and dividing the sample periods based on the time of the financial crises. Furthermore, the quantile regression reveals the asymmetric effect of financial liberalization on firm risk. We note that our findings are new in the literature.

Suggested Citation

  • Chong-Chuo Chang & Oshamah Lin Lin & Oshamah Yu-Cheng Chang & Oshamah Kun-Zhan Hsu, 2023. "Impact of Financial Liberalization on Firm Risk," Advances in Decision Sciences, Asia University, Taiwan, vol. 27(3), pages 14-45, September.
    • Handle: RePEc:aag:wpaper:v:27:y:2023:i:3:p:14-45
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    More about this item

    Keywords

    Liberalization; Financial Liberalization; Firm Risk; Risk Management; Economic Development.;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development

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