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Corporate governance reform and risk-taking: Evidence from a quasi-natural experiment in an emerging market

Author

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  • Koirala, Santosh
  • Marshall, Andrew
  • Neupane, Suman
  • Thapa, Chandra

Abstract

Existing studies suggest that stricter Corporate Governance Reform (CGR) reduces corporate risk-taking, primarily due to higher compliance costs and expanded liabilities of insiders or managers. We revisit the relationship between CGR and risk-taking in an emerging market set-up characterized by weaker market forces of corporate scrutiny and greater insider ownership, which encourages firms to pursue investment conservatism. Using a quasi-natural experiment, we find that stricter CGR leads to greater corporate risk-taking. We further show that risk-taking is an important channel through which CGR enhances firm value. Our findings support the view that stricter CGR can have a positive effect on corporate risk-taking and corporate investment decisions in an evolving regulatory environment.

Suggested Citation

  • Koirala, Santosh & Marshall, Andrew & Neupane, Suman & Thapa, Chandra, 2020. "Corporate governance reform and risk-taking: Evidence from a quasi-natural experiment in an emerging market," Journal of Corporate Finance, Elsevier, vol. 61(C).
    • Handle: RePEc:eee:corfin:v:61:y:2020:i:c:s092911991830138x
    DOI: 10.1016/j.jcorpfin.2018.08.007
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    More about this item

    Keywords

    Corporate governance reform; Risk-taking; Emerging market; Quasi-natural experiment;
    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
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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