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Large Shareholder Diversification And Corporate Risk- Taking

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  • 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.

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Bibliographic Info

Paper provided by Purdue University, Department of Economics in its series Purdue University Economics Working Papers with number 1241.

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Length: 53
Date of creation: Jul 2010
Date of revision:
Handle: RePEc:pur:prukra:1241

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Keywords: Risk-taking choices; Large shareholders; Portfolio diversification;

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References

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  1. Laeven, Luc & Levine, Ross, 2005. "Is There a Diversification Discount in Financial Conglomerates?," CEPR Discussion Papers 5121, C.E.P.R. Discussion Papers.
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Citations

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Cited by:
  1. Houssam Bouzgarrou & Patrick Navatte, 2013. "Ownership structure and acquirers performance: Family vs. non-family firms," Post-Print halshs-00801736, HAL.
  2. Oesterle, Michael-Jörg & Richta, Hannah Noriko & Fisch, Jan Hendrik, 2013. "The influence of ownership structure on internationalization," International Business Review, Elsevier, vol. 22(1), pages 187-201.
  3. repec:hal:wpaper:hal-00916674 is not listed on IDEAS
  4. Bouvatier, Vincent & Lepetit, Laetitia & Strobel, Frank, 2014. "Bank income smoothing, ownership concentration and the regulatory environment," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 253-270.
  5. Dominika Langenmayr & Rebecca Lester, 2013. "Taxation and corporate risk-taking," Working Papers 1316, Oxford University Centre for Business Taxation.
  6. Alex Edmans, 2013. "Blockholders and Corporate Governance," NBER Working Papers 19573, National Bureau of Economic Research, Inc.
  7. Boubaker, Sabri & Nguyen, Pascal & Rouatbi, Wael, 2012. "Large shareholders and firm risk-taking behavior," MPRA Paper 39005, University Library of Munich, Germany.

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