Does Corporate Governance Influence Corporate Risk-Taking? Evidence from the Institutional Shareholders Services (ISS)

16 Pages Posted: 28 Feb 2015

See all articles by Pornsit Jiraporn

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Pattanaporn Chatjuthamard

Sasin GIBA

Shenghui Tong

Central University of Finance and Economics (CUFE)

Young Sang Kim

Northern Kentucky University - Haile/US Bank College of Business

Date Written: February 26, 2015

Abstract

We provide evidence on the effect of corporate governance on the extent of corporate risk-taking. Provided by the Institutional Shareholder Services (ISS), our governance metrics are among the most comprehensive in the literature. Our results show that firms with more effective governance exhibit corporate strategies that are significantly less risky. Left to their own devices, managers tend to take excessive risk. Effective governance, however, reduces the degree of risk-taking significantly. Exploiting the passage of the Sarbanes-Oxley Act of 2002 as an exogenous shock that improves governance quality, we show that the effect of corporate governance on risk-taking is likely causal.

Keywords: corporate governance, risk-taking, ISS, institutional shareholder services, agency theory

JEL Classification: G32, G34

Suggested Citation

Jiraporn, Pornsit and Chatjuthamard, Pattanaporn and Tong, Shenghui and Kim, Young Sang, Does Corporate Governance Influence Corporate Risk-Taking? Evidence from the Institutional Shareholders Services (ISS) (February 26, 2015). Available at SSRN: https://ssrn.com/abstract=2570983 or http://dx.doi.org/10.2139/ssrn.2570983

Pornsit Jiraporn (Contact Author)

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

Pattanaporn Chatjuthamard

Sasin GIBA ( email )

Bangkok
Thailand

Shenghui Tong

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Young Sang Kim

Northern Kentucky University - Haile/US Bank College of Business ( email )

Dept of Economics and Finance
Highland Heights, KY 41099
United States
859-572-5160 (Phone)
859-572-6627 (Fax)

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