Shareholder and Bondholder Governance, and Managerial Risk-Taking

40 Pages Posted: 24 Aug 2009

See all articles by Tao-Hsien Dolly King

Tao-Hsien Dolly King

University of North Carolina (UNC) at Charlotte - Department of Finance

Min-Ming Wen

California State University, Los Angeles

Date Written: August 24, 2009

Abstract

We examine the relation between corporate governance and managerial risk-taking behavior. In light of the global financial crisis, the importance of effective governance structures in protecting claimholder interests cannot be emphasized enough. For corporate governance, we propose to include both shareholder antitakeover defenses and bondholder covenant structure to create an overall governance structure. We find that the overall corporate governance structure has a significant impact on how managers make decisions on investment policy. More importantly, bondholder and shareholder governance have conflicting effects on investment policy. The relative strength of the two governance structures determines the risk of the firms’ investment portfolios and thus the wealth effects of the claimholders.

Keywords: corporate governance, global financial crisis

JEL Classification: G34, G31

Suggested Citation

King, Tao-Hsien Dolly and Wen, Min-Ming, Shareholder and Bondholder Governance, and Managerial Risk-Taking (August 24, 2009). 22nd Australasian Finance and Banking Conference 2009. Available at SSRN: https://ssrn.com/abstract=1460962 or http://dx.doi.org/10.2139/ssrn.1460962

Tao-Hsien Dolly King (Contact Author)

University of North Carolina (UNC) at Charlotte - Department of Finance ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States
704-687-7652 (Phone)
704-687-6987 (Fax)

Min-Ming Wen

California State University, Los Angeles ( email )

5151 State University Dr
Los Angeles, CA 90032
United States

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