Corporate Governance Reform and Risk-Taking: Evidence from a Natural Experiment in an Emerging Market

Posted: 24 Aug 2017 Last revised: 25 Jan 2021

See all articles by Santosh Koirala

Santosh Koirala

University of Birmingham, Birmingham Business School

Andrew P. Marshall

University of Strathclyde - Strathclyde Business School

Suman Neupane

Griffith University - Department of Accounting, Finance and Economics

Chandra Thapa

University of Strathclyde - Department of Accounting and Finance

Date Written: August 18, 2017

Abstract

Empirical evidence from developed markets suggests a negative effect of corporate governance reform (CGR) on corporate risk-taking primarily due to higher compliance costs. We revisit this relation in an emerging market categorized by weaker market forces of corporate control and higher likelihood of expropriation by dominant insiders. Contrary to the evidence from developed markets, we find CGR leads to higher corporate risk-taking. Our study shows risk-taking is an important channel through which CGR can add to higher firm-valuation. The results of our study support the view that stricter CGR enforcement can have a positive investment impact in evolving regulatory environment.

Keywords: corporate governance reform, risk-taking, emerging market, natural-experiment.

JEL Classification: G32, G34, G38

Suggested Citation

Koirala, Santosh and Marshall, Andrew P. and Neupane, Suman and Thapa, Chandra, Corporate Governance Reform and Risk-Taking: Evidence from a Natural Experiment in an Emerging Market (August 18, 2017). Available at SSRN: https://ssrn.com/abstract=3021687

Santosh Koirala (Contact Author)

University of Birmingham, Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

Andrew P. Marshall

University of Strathclyde - Strathclyde Business School ( email )

100 Cathedral Street
Glasgow G4 0LN
United Kingdom
44 0141 548 3894 (Phone)

Suman Neupane

Griffith University - Department of Accounting, Finance and Economics ( email )

170 Kessels Road
Nathan, Queensland 4111
Australia

Chandra Thapa

University of Strathclyde - Department of Accounting and Finance ( email )

Curran Building
100 Cathedral Street
Glasgow G4 0LN
United Kingdom

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