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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. Copyright (c) 2008 The American Finance Association.

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
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