Does corporate governance influence corporate risk-taking? Evidence from the institutional shareholders services (ISS)

Pornsit Jiraporn, Pattanaporn Chatjuthamard, Shenghui Tong, Young Sang Kim

Research output: Contribution to journalArticle

14 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)105-112
Number of pages8
JournalFinance Research Letters
Volume13
DOIs
StatePublished - May 1 2015

All Science Journal Classification (ASJC) codes

  • Finance

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