Institutional ownership and corporate risk-taking in Japanese listed firms

Hideaki Sakawa*, Naoki Watanabel, Geeta Duppati, Robert Faff

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

1 Citation (Scopus)

Abstract

Agency theory predicts that institutional ownership plays an important role in monitoring corporate risk-taking. This study examines this ownership-risk taking linkage in Japan over the period 2007 and 2019. We proxy risk through measures of idiosyncratic risk, total risk, and market beta. We show that (relational) foreign institutional shareholdings (do not) induce corporate risk-taking, thereby mitigating (preserving) the managerial ‘quiet life’ in Japanese corporations. Using 2SLS analysis, the roles of institutional shareholders are robust to endogeneity concerns. Finally, we also confirm robustness using alternative accounting-based risk proxies such as the standard deviation of Tobin’s Q and ROA. Our study implies that the monitoring of institutional shareholders is important in Japanese corporations whose top executives might be prone to seek a ‘quiet life’.

Original languageEnglish
Pages (from-to)1899-1914
Number of pages16
JournalApplied Economics
Volume53
Issue number16
DOIs
Publication statusPublished - 2021
Externally publishedYes

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