Employing a large sample of 17,698 firms across 42 countries spanning the years 2000 to 2015, we show that foreign institutional ownership (FIO) positively influences corporate risk-taking, and this positive relation is achieved through the monitoring channel and international diversification channel. In addition, FIO is found to be a substitute for country-level corporate governance in determining corporate risk-taking, indicating that foreign institutional investors play a significant role in motivating managers to take risk in countries with weaker corporate governance. Various robustness tests and careful considerations of endogeneity confirm our main conclusions.
Dr. An Zhe got his PhD in finance and master degrees in finance and banking at the University of New South Wales. His research interests include international corporate finance, institutional environments, capital structure, stock price crash risk, mergers and acquisitions, etc. He has published papers in journals such as Journal of Corporate Finance and Journal of Banking & Finance.