Large Shareholder Diversification and Corporate Risk-Taking

66 Pages Posted: 17 Mar 2010 Last revised: 9 May 2012

See all articles by Mara Faccio

Mara Faccio

Mitchell E. Daniels, Jr. School of Business, Purdue University; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Maria‐Teresa Marchica

The University of Manchester - Alliance Manchester Business School

Roberto Mura

University of Manchester - Alliance Manchester Business School

Date Written: November 15, 2011

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 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 can improve economic welfare.

Keywords: Risk-taking choices, Large shareholders, Portfolio diversification

JEL Classification: G11, G15, G31

Suggested Citation

Faccio, Mara and Marchica, Maria‐Teresa and Mura, Roberto, Large Shareholder Diversification and Corporate Risk-Taking (November 15, 2011). Manchester Business School Research Paper No. 618, Available at SSRN: https://ssrn.com/abstract=1572667 or http://dx.doi.org/10.2139/ssrn.1572667

Mara Faccio (Contact Author)

Mitchell E. Daniels, Jr. School of Business, Purdue University ( email )

403 W. State Street
West Lafayette, IN 47907-1310
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Maria‐Teresa Marchica

The University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Roberto Mura

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, Lancashire M15 6PB
United Kingdom

HOME PAGE: http://www.robertomura.com

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