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Corporate Risk Taking and Ownership Structure

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  • Teodora Paligorova
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    Abstract

    This paper investigates the determinants of corporate risk taking. Shareholders with substantial equity ownership in a single company may advocate conservative investment policies due to greater exposure to firm risk. Using a large cross-country sample, I find a positive relationship between corporate risk taking and equity ownership of the largest shareholder. This result is entirely driven by investors holding the largest equity stakes in more than one company. Family shareholders avoid corporate risk taking as their ownership increases unlike mutual funds, banks, financial and industrial companies. Stronger legal protection of shareholder rights is associated with more risk taking, while stronger legal protection of creditor rights reduces risk taking.

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    File URL: http://www.bankofcanada.ca/wp-content/uploads/2010/05/wp10-3.pdf
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    Bibliographic Info

    Paper provided by Bank of Canada in its series Working Papers with number 10-3.

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    Length: 44 pages
    Date of creation: 2010
    Date of revision:
    Handle: RePEc:bca:bocawp:10-3

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    Keywords: Financial markets; International topics;

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    Cited by:
    1. Boubakri, Narjess & Cosset, Jean-Claude & Saffar, Walid, 2013. "The role of state and foreign owners in corporate risk-taking: Evidence from privatization," Journal of Financial Economics, Elsevier, vol. 108(3), pages 641-658.
    2. Roxana Mihet, 2013. "Effects of culture on firm risk-taking: a cross-country and cross-industry analysis," Journal of Cultural Economics, Springer, vol. 37(1), pages 109-151, February.

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