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Corporate Governance and Risk‐Taking

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  • KOSE JOHN
  • LUBOMIR LITOV
  • BERNARD YEUNG

Abstract

Better investor protection could lead corporations to undertake riskier but value‐enhancing investments. For example, better investor protection mitigates the taking of private benefits leading to excess risk‐avoidance. Further, in better investor protection environments, stakeholders like creditors, labor groups, and the government are less effective in reducing corporate risk‐taking for their self‐interest. However, arguments can also be made for a negative relationship between investor protection and risk‐taking. Using a cross‐country panel and a U.S.‐only sample, we find that corporate risk‐taking and firm growth rates are positively related to the quality of investor protection.

Suggested Citation

  • Kose John & Lubomir Litov & Bernard Yeung, 2008. "Corporate Governance and Risk‐Taking," Journal of Finance, American Finance Association, vol. 63(4), pages 1679-1728, August.
    • Handle: RePEc:bla:jfinan:v:63:y:2008:i:4:p:1679-1728
    DOI: 10.1111/j.1540-6261.2008.01372.x
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