The Role of State and Foreign Owners in Corporate Risk-Taking: Evidence from Privatization

Boubakri, Narjess; Cosset, Jean-Claude; Saffar, Walid

doi:10.2139/ssrn.2099130

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The Role of State and Foreign Owners in Corporate Risk-Taking: Evidence from Privatization

50 Pages Posted: 4 Jul 2012 Last revised: 3 Sep 2012

See all articles by Narjess Boubakri

Narjess Boubakri

American University of Sharjah - School of Business and Management; HEC Montreal - Department of Finance

Walid Saffar

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: September 3, 2012

Abstract

Using a unique database of 381 newly privatized firms from 57 countries, we investigate the impact of shareholders’ identity on corporate risk-taking behavior. We find strong and robust evidence that state (foreign) ownership is negatively (positively) related to corporate risk-taking. Moreover, we find that high risk-taking by foreign owners depends on the strength of country-level governance institutions. Our results suggest that relinquishment of government control, openness to foreign investment, and improvement of country-level governance institutions are key determining factors of corporate risk-taking in newly privatized firms.

Keywords: privatization, risk-taking, corporate governance

JEL Classification: G32, G34

Suggested Citation: Suggested Citation

Boubakri, Narjess and Cosset, Jean-Claude and Saffar, Walid, The Role of State and Foreign Owners in Corporate Risk-Taking: Evidence from Privatization (September 3, 2012). Available at SSRN: https://ssrn.com/abstract=2099130 or http://dx.doi.org/10.2139/ssrn.2099130