Political institutions and corporate risk-taking: International evidence


Type
Article
Change log
Authors
Cardoza, R 
Abstract

Tapping into firm-level accounting data across 90 countries over a 26-year period, we find that sound political institutions are positively associated with corporate risk-taking. This result is economically significant, robust to alternative proxies for corporate risk-taking and political institutions, and continues to hold after mitigating endogeneity concerns of political institutions. We also collect evidence that sound political institutions may compensate for weak legal institutions in inducing corporate risk-taking. We argue that sound political institutions improve the investment environment for firms and can induce higher levels of corporate risk-taking, which is ultimately associated with economic growth.

Description
Keywords
behavioral theory of the firm, firm size, legal institution, managerial risk-taking, profitability
Journal Title
International Review of Finance
Conference Name
Journal ISSN
1369-412X
1468-2443
Volume Title
Publisher
Wiley
Sponsorship
Economic and Social Research Council (ES/P004296/1)
Cambridge University Land Society, the Economic and Social Research Council (Grant No. ES/P004296/1), and the National Natural Science Foundation of China (Grant No. 71661137009).