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SSRN
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Corporate Governance and Managerial Risk-Taking: Theory and Evidence

SSRN Electronic Journal
2004
  • 3
    Citations
  • 4,604
    Usage
  • 6
    Captures
  • 0
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Citations
    3
    • Citation Indexes
      3
  • Usage
    4,604
    • Abstract Views
      3,591
    • Downloads
      1,013
  • Captures
    6
    • Readers
      6
      • SSRN
        6
  • Ratings
    • Download Rank
      45,123

Article Description

We study how the investor protection environment affects corporate managers' incentives to take value-enhancing risks. In our model, the manager chooses higher perk consumption when investor protection is low. Since perks represent a priority claim held by the manager, lower investor protection leads the manager to implement a sub-optimally conservative investment policy, effectively aligning her risk-taking incentives with those of the debt holders. By the same token, higher investor protection is associated with riskier investment policy and faster firm growth. We test these predictions in a large Global Vantage panel. We find strong empirical confirmation that corporate risk-taking and firm growth rates are positively related to the quality of investor protection.

Bibliographic Details

Kose John; Lubomir P. Litov; Bernard Yin Yeung

Elsevier BV

Corporate Governance; Investor Protection; Managerial Incentives

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