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Corporate risk-taking,returns and the nature of major shareholders: Evidence from prospect theory |
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| Affiliation: | 1. Trulaske College of Business, Cornell Hall, University of Missouri – Columbia, Columbia, MO 65211, USA;2. College of Business, Barsema Hall, Northern Illinois University, Dekalb, IL 60115, USA;1. W. Frank Barton School of Business, Wichita State University, Clinton Hall, Room 332, Wichita, KS 67260-0087, United States;2. College of Business Administration, University of Nebraska-Lincoln, 391 CBA, 1240 R Street, Lincoln, NE 68588-0488, United States;1. University of Ottawa, Ottawa, Ontario, Canada;2. Peking University, Beijing, China;3. China Merchants Group, China;4. University of International Business and Economics, Beijing, China;5. University of Manitoba, Winnipeg, Manitoba, Canada |
| Abstract: | This paper analyses the relation between corporate risk-taking and firm performance for a sample of international listed firms over the period 2001–2013. We consider the approaches on individual behavior (specifically prospect theory) to propose a U-shaped relation between corporate risk-taking and firm returns. We find that firms adopt an attitude of risk-seeking when the expected performance is below a target performance (to avoid an anticipated loss) and an attitude of risk averse when the performance exceeds that target. This relation is affected by the economic context and the nature of the major shareholder: Firms controlled by families or institutional investors react more conservatively (taking or avoiding risk) to changes in corporate results. We are aware that our results, are affected by both the theoretical model and the temporal and spatial framework used. |
| Keywords: | Corporate risk-taking firm performance prospect theory family firms institutional investors |
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