Abstract

http://ssrn.com/abstract=687206
 
 

References (34)



 
 

Citations (23)



 


 



Corporate Governance and Managerial Risk Taking: Theory and Evidence


Kose John


New York University (NYU) - Department of Finance

Lubomir P. Litov


University of Arizona - Department of Finance; University of Pennsylvania - Wharton Financial Institutions Center

Bernard Yin Yeung


National University of Singapore - Business School

March 15, 2005


Abstract:     
We study how the investor protection environment affects corporate managers' incentives to take value-enhancing risks. In our model, the manager chooses higher perk consumption when investor protection is low. Since perks represent a priority claim held by the manager, lower investor protection leads the manager to implement a sub-optimally conservative investment policy, effectively aligning her risk-taking incentives with those of the debt holders. By the same token, higher investor protection is associated with riskier investment policy and faster firm growth. We test these predictions in a large Global Vantage panel. We find strong empirical confirmation that corporate risk-taking and firm growth rates are positively related to the quality of investor protection.

Number of Pages in PDF File: 49

Keywords: Corporate Governance, Investor Protection, Managerial Incentives.

JEL Classification: G15, G31, G34

working papers series


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Date posted: March 22, 2005  

Suggested Citation

John, Kose and Litov, Lubomir P. and Yeung, Bernard Yin, Corporate Governance and Managerial Risk Taking: Theory and Evidence (March 15, 2005). Available at SSRN: http://ssrn.com/abstract=687206 or http://dx.doi.org/10.2139/ssrn.687206

Contact Information

Kose John
New York University (NYU) - Department of Finance ( email )
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0337 (Phone)
212-995-4233 (Fax)
Lubomir P. Litov
University of Arizona - Department of Finance ( email )
McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
520-621-3794 (Phone)
University of Pennsylvania - Wharton Financial Institutions Center
2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States

Bernard Yin Yeung (Contact Author)
National University of Singapore - Business School ( email )
1 Business Link
Biz 2 Building Level 6
Singapore 117592
Singapore
65 6516 3075 (Phone)
65 6779 1365 (Fax)
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