Title: | Corporate Governance and Managerial Risk Taking: Theory and Evidence |
Authors: | Yeung, Bernard Litov, Lubomir John, Kose |
Keywords: | Corporate Governance;Investor Protection;Managerial Incentives |
Issue Date: | 17-Dec-2004 |
Series/Report no.: | EC-04-35 |
Abstract: | 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. |
URI: | http://hdl.handle.net/2451/26149 |
Appears in Collections: | Economics Working Papers |
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