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Strong financial regulation and corporate risk-taking: Evidence from a natural experiment in China

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  • Liu, Qi
  • Wu, Jiejie

Abstract

We use the difference-in-differences (DID) method to investigate the impact of strong financial regulation on corporate risk-taking via the issue of a capital control policy. Using a natural experiment, we find that strong financial regulation reduces both agency costs and risk-averse behavior among managers, which translates into an increased willingness to engage in high-risk investments. Our results provide evidence that strong financial regulation promotes corporate risk-taking. This positive effect persists after a series of robustness tests.

Suggested Citation

  • Liu, Qi & Wu, Jiejie, 2023. "Strong financial regulation and corporate risk-taking: Evidence from a natural experiment in China," Finance Research Letters, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:finlet:v:54:y:2023:i:c:s1544612323001204
    DOI: 10.1016/j.frl.2023.103747
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    Cited by:

    1. Hu, Xiaohua & Fei, Yulian, 2023. "Does the matching degree between data and human capital affect firm innovation?," Finance Research Letters, Elsevier, vol. 55(PB).

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