Journal Article10.1111/corg.12456
Foreign Institutional Ownership and Corporate Risk‐Taking: International Evidence
Garland Huang,Zhe An,Donghui Li +2 more
17
TL;DR: In this paper , the role of foreign institutional investors (FIIs) on corporate risk-taking in an international context was investigated and it was shown that FIIs play a role in encouraging firms to take risks and can substitute country-level corporate governance in determining corporate risk taking.
read more
Abstract: Research Question/Issue This study aims to investigate the role of foreign institutional investors (FIIs) on corporate risk-taking in an international context. We conjecture that FIIs play a role in encouraging firms to take risks and can substitute country-level corporate governance in determining corporate risk-taking. Research Findings/Insights Employing a large sample of 17,698 firms across 42 economies, we show that foreign institutional ownership positively influences corporate risk-taking. This positive relation is achieved through the monitoring channel and the insurance channel. Furthermore, we show that FIIs substitute country-level corporate governance in determining corporate risk-taking, indicating that FIIs play a significant role in promoting risk-taking in economies with weaker governance. In addition, debtholders view FIIs' risk-promoting role negatively and use more restrictive covenants to protect themselves. Theoretical/Academic Implications This study provides empirical support for the role of FIIs on corporate investment decisions, thus complementing the existing literature. In addition, our paper documents that country-level corporate governance and FIIs are substitutes in determining corporate risk-taking, thus shedding additional light not only on the role of country-level corporate governance but also on its controversial joint role with FIIs. Practitioner/Policy Implications FIIs from economies with stronger corporate governance are particularly effective at promoting corporate risk-taking in economies with weaker corporate governance, providing a new channel through which foreign investments can influence economic growth in developing economies. Therefore, policymakers should carefully consider and trade off the costs and benefits of foreign investment when proposing relevant policies.
read more
Chat with Paper
AI Agents for this Paper
Find similar papers on Google Scholar, PubMed and Arxiv
Write a critical review of this paper
Analyze citations of this paper to find unaddressed research gaps
Citations
CSR disclosure, financial performance, and ownership: evidence from China
Rizwan Ali,Liu Yan-ping,Ramiz Ur Rehman,Muhammad Akram Naseem +3 more
TL;DR: This study examines the relationship between CSR disclosure and financial performance in Chinese listed firms, finding a positive association between CSR disclosure and financial metrics, moderated by ownership structure, suggesting stronger CSR disclosure can enhance business image and performance.
CEO attributes and borrowing costs: exploring the moderating role of financial literacy
Ali Amin,Rizwan Ali,Ramiz Ur Rehman +2 more
TL;DR: This study examines the effect of CEO attributes on borrowing costs, finding that age, tenure, ownership, and gender are negatively associated with borrowing costs, while CEO duality is positively associated, moderated by financial literacy in an emerging economy.
Stewardship regulation and institutional investors' preference for investee governance quality
James Routledge
TL;DR: Stewardship regulation positively influences institutional investors' preference for investee governance quality, with board independence playing a key role.
Institutional Mechanisms, Ownership and Bank Risk-taking during Crises
Nathan Lael Joseph,Thi Thuy Anh Vo +1 more
References
Theory of the firm: Managerial behavior, agency costs and ownership structure
TL;DR: In this article, the authors draw on recent progress in the theory of property rights, agency, and finance to develop a theory of ownership structure for the firm, which casts new light on and has implications for a variety of issues in the professional and popular literature.
61.3K
Law and Finance
TL;DR: In this article, the authors examined legal rules covering protection of corporate shareholders and creditors, the origin of these rules, and the quality of their enforcement in 49 countries and found that common-law countries generally have the strongest, and French civil law countries the weakest, legal protections of investors, with German- and Scandinavian-civil law countries located in the middle.
•Posted Content
Instrumental Variables Regression with Weak Instruments
TL;DR: In this article, the authors developed asymptotic distribution theory for instrumental variable regression when the partial correlation between the instruments and a single included endogenous variable is weak, here modeled as local to zero.
8.4K
Testing for Weak Instruments in Linear IV Regression
James H. Stock,Motohiro Yogo +1 more
- 01 Jan 2005
TL;DR: This paper proposed quantitative definitions of weak instruments based on the maximum IV estimator bias, or the maximum Wald test size distortion, when there are multiple endogenous regressors, and tabulated critical values that enable using the first-stage F-statistic (or, for instance, the Cragg-Donald (1993) statistic) to test whether give n instruments are weak.
A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments
TL;DR: Weak instruments arise when the instruments in linear instrumental variables (IV) regression are weakly correlated with the included endogenous variables as discussed by the authors, and weak instruments correspond to weak identification of some or all of the unknown parameters.