The Effects of Ownership Concentration and Corporate Governance on Corporate Risk-Taking: The Case of Thailand

Abstract

We investigate the effects of ownership concentration and corporate governance on the extent of risk-taking in an important emerging economy- Thailand. Ownership in Thai firms are substantially more concentrated than that in developed economies, providing a unique opportunity to study the effect of highly concentrated ownership on risk-taking. Large owners are under-diversified and are thus more vulnerable to the firm’s idiosyncratic risk. Therefore, they tend to advocate less risky corporate policies and strategies. Consistent with this notion, we find that more concentrated ownership induces firms to take significantly less risk. The results are corroborated by additional analysis, including an instrumental-variable analysis and propensity score matching. Finally, we also document a non-monotonic effect of corporate governance on risk-taking.

Keywords: ownership, corporate governance, risk-taking, agency theory, instrumental variable

JEL Classification: G32, G34