The role of institutional investors in propagating the 2007 financial crisis in Southern Europe |
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| Institution: | 1. University of Burgos, Department of Economics and Business Administration, Pza. Infanta Elena, 09001 Burgos, Spain;2. Faculdade de Economia do Porto, Universidade do Porto and CEF-UP—Center for Economics and Finance at UP Rua Roberto Frias, 4200-464 Porto, Portugal;3. University of Valladolid—Soria Campus, Department of Accounting and Financial Economics, Calle Universidad s/n, 42004 Soria, Spain;1. University of Alaska Fairbanks, School of Management, 303Tanana Loop, St. 201, Fairbanks, AK 99775, USA;2. East Carolina University, Department of Finance, 3127 Bate Building, Greenville, NC 27858-4353, USA;1. Department of Radiology, Xiangya Hospital, Central South University, Changsha 410008, Hunan, China;2. Department of Radiology, Keck School of Medicine, University of Southern California, Los Angeles, CA 90033, USA;3. Department of Neurology, Xiangya Hospital, Central South University, Changsha 410008, Hunan, China;1. Assistant Professor Department of Computer Science and Engineering Anna University Regional Office, Madurai, Tamilnadu, India;2. Professor Department of Information Technology K.L.N.College of Engineering, Pottapalayam, Sivaganga, Tamil Nadu, India;1. Institute of Interdisciplinary Information Sciences, Tsinghua University, Beijing, China;2. Institute of Theoretical Computer Science, School of Information Management and Engineering, Shanghai University of Finance and Economics, Shanghai, China |
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| Abstract: | The 2007 financial crisis has affected Southern European companies (Spanish, Portuguese, Italian and Greek) more than others. From a Minskyan bubble-burst cycle perspective (Minsky, 1986), we study the relation between institutional ownership structure and corporate risk-taking for a sample of non-financial listed companies from Spain, Portugal, Italy and Greece for the period 2001–2014. Our results suggest that the financial deregulation process, that lead to the financialization of the world economy before the 2007 financial crisis and the favourable macroeconomic scenario encouraged corporate risk-taking in those countries. We also find that the lack of effective control mechanisms provided an incentive for investment funds to assume a proactive role, encouraging companies to overinvest in risky projects. |
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| Keywords: | Risk-taking Financial deregulation Crisis Institutional investors |
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