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Corporate Risk Taking and Ownership Structure

  • Teodora Paligorova

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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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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