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Large Shareholder Diversification And Corporate Risk- Taking

Listed author(s):
  • Mara Faccio
  • Maria-Teresa Marchica
  • Roberto Mura

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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File URL: http://www.krannert.purdue.edu/programs/phd/Working-papers-series/2010/1241.pdf
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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
Handle: RePEc:pur:prukra:1241
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Web page: http://www.krannert.purdue.edu/programs/phd

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  1. Laeven, Luc & Levine, Ross, 2007. "Is there a diversification discount in financial conglomerates?," Journal of Financial Economics, Elsevier, vol. 85(2), pages 331-367, August.
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  3. Kempf, Alexander & Ruenzi, Stefan & Thiele, Tanja, 2009. "Employment risk, compensation incentives, and managerial risk taking: Evidence from the mutual fund industry," Journal of Financial Economics, Elsevier, vol. 92(1), pages 92-108, April.
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  8. William N. Goetzmann & Alok Kumar, 2008. "Equity Portfolio Diversification," Review of Finance, European Finance Association, vol. 12(3), pages 433-463.
  9. Simeon Djankov & Tim Ganser & Caralee McLiesh & Rita Ramalho & Andrei Shleifer, 2010. "The Effect of Corporate Taxes on Investment and Entrepreneurship," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(3), pages 31-64, July.
  10. repec:aea:jeclit:v:43:y:2005:i:3:p:655-720 is not listed on IDEAS
  11. Bertrand, Marianne & Johnson, Simon & Samphantharak, Krislert & Schoar, Antoinette, 2008. "Mixing family with business: A study of Thai business groups and the families behind them," Journal of Financial Economics, Elsevier, vol. 88(3), pages 466-498, June.
  12. Randall K. Morck, 2005. "A History of Corporate Governance around the World: Family Business Groups to Professional Managers," NBER Books, National Bureau of Economic Research, Inc, number morc05-1, December.
  13. Agrawal, Anup & Mandelker, Gershon N, 1987. " Managerial Incentives and Corporate Investment and Financing Decision s," Journal of Finance, American Finance Association, vol. 42(4), pages 823-837, September.
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  15. Faccio, Mara & Lang, Larry H. P., 2002. "The ultimate ownership of Western European corporations," Journal of Financial Economics, Elsevier, vol. 65(3), pages 365-395, September.
  16. Larry H. P. Lang & Mara Faccio & Leslie Young, 2001. "Dividends and Expropriation," American Economic Review, American Economic Association, vol. 91(1), pages 54-78, March.
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