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Large Shareholder Diversification and Corporate Risk-Taking

Author

Listed:
  • 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 nondiversified 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 can improve economic welfare. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.

Suggested Citation

  • Mara Faccio & Maria-Teresa Marchica & Roberto Mura, 0. "Large Shareholder Diversification and Corporate Risk-Taking," Review of Financial Studies, Society for Financial Studies, vol. 24(11), pages 3601-3641.
  • Handle: RePEc:oup:rfinst:v:24:y::i:11:p:3601-3641
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    File URL: http://hdl.handle.net/10.1093/rfs/hhr065
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    Cited by:

    1. Mihail Miletkov & Annette Poulsen & M. Babajide Wintoki, 2017. "Foreign independent directors and the quality of legal institutions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, pages 267-292.
    2. Boubaker, Sabri & Nguyen, Pascal & Rouatbi, Wael, 2012. "Large shareholders and firm risk-taking behavior," MPRA Paper 39005, University Library of Munich, Germany.
    3. Bouzgarrou, Houssam & Navatte, Patrick, 2013. "Ownership structure and acquirers performance: Family vs. non-family firms," International Review of Financial Analysis, Elsevier, vol. 27(C), pages 123-134.
    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. Bignon, Vincent & Vuillemey, Guillaume, 2016. "The Failure of a Clearinghouse: Empirical Evidence," CEPR Discussion Papers 11630, C.E.P.R. Discussion Papers.
    6. Dominika Langenmayr & Rebecca Lester, 2013. "Taxation and corporate risk-taking," Working Papers 1316, Oxford University Centre for Business Taxation.
    7. Edmans, Alex & Levit, Doron & Reilly, Devin, 2014. "Governance and Comovement Under Common Ownership," CEPR Discussion Papers 10119, C.E.P.R. Discussion Papers.
    8. Federico Esposito, 2016. "Risk Diversification and International Trade," 2016 Meeting Papers 302, Society for Economic Dynamics.
    9. Rima Turk, 2015. "Financial Decisions and Investment Outcomes in Developing Countries; The Role of Institutions," IMF Working Papers 15/38, International Monetary Fund.
    10. Fabrizio Rossi & Richard J. Cebula, 2015. "Does the Board of Directors Affect the Extent of Corporate R&D? Evidence from Italian listed companies," Economics Bulletin, AccessEcon, vol. 35(4), pages 2567-2580.
    11. Alex Edmans, 2014. "Blockholders and Corporate Governance," Annual Review of Financial Economics, Annual Reviews, vol. 6(1), pages 23-50, December.
    12. Zhong, Ma, 2014. "认知的桎梏:从稳定型财务业绩到企业过度投资 ——基于中国上市公司的证据
      [Cognitive shackles: from Consistency of financial performance to Corporate Over-investment ——Evidence-based China Listed Companies]
      ," MPRA Paper 55476, University Library of Munich, Germany.
    13. repec:oup:revfin:v:21:y:2017:i:5:p:1805-1846. is not listed on IDEAS
    14. Alexander Ljungqvist & Liandong Zhang & Luo Zuo, 2015. "Sharing Risk with the Government: How Taxes Affect Corporate Risk Taking," NBER Working Papers 21834, National Bureau of Economic Research, Inc.
    15. Andrea Boellis & Sergio Mariotti & Alessandro Minichilli & Lucia Piscitello, 2016. "Family involvement and firms’ establishment mode choice in foreign markets," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, pages 929-950.
    16. Mário Santos & António Moreira & Elisabete Vieira, 2014. "Ownership concentration, contestability, family firms, and capital structure," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(4), pages 1063-1107, November.
    17. Oesterle, Michael-Jörg & Richta, Hannah Noriko & Fisch, Jan Hendrik, 2013. "The influence of ownership structure on internationalization," International Business Review, Elsevier, pages 187-201.
    18. Edmans, Alex & Holderness, Clifford, 2016. "Blockholders: A Survey of Theory and Evidence," CEPR Discussion Papers 11442, C.E.P.R. Discussion Papers.
    19. Valentina Bruno & Hyun Song Shin, 2014. "Globalization of corporate risk taking," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, pages 800-820.
    20. repec:hal:wpaper:hal-00916674 is not listed on IDEAS
    21. Meg Adachi-Sato & Chaiporn Vithessonthi, 2016. "Corporate Debt Maturity and Future Firm Performance Volatility," PIER Discussion Papers 29., Puey Ungphakorn Institute for Economic Research, revised May 2016.
    22. Fabrizio Rossi & Richard J. Cebula, 2015. "Ownership Structure and R&D: An Empirical Analysis of Italian listed companies," PSL Quarterly Review, Economia civile, vol. 68(275), pages 297-326.
    23. repec:kap:jmgtgv:v:21:y:2017:i:3:d:10.1007_s10997-016-9365-1 is not listed on IDEAS

    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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