24 Dec 2020
Sasin professor’s research paper published in Corporate Governance: The International Journal of Business in SocietyThis study investigates the role of the market for corporate control as an external governance mechanism and its effect on executive risk-taking incentives. Managers tend to be risk-averse as they are more exposed to idiosyncratic risk, resulting in sub-optimal risk-taking that does not maximize shareholders’ wealth. The takeover market alleviates this problem, inducing managers to take more risk. Therefore, risk-taking incentives inside the firm are less powerful when the outside takeover market is more active. Consistent with this study’s hypothesis, a more active takeover market results in less powerful risk-taking incentives. Specifically, a rise in takeover vulnerability by one standard deviation diminishes executive risk-taking incentives by 22.39%, which is an economically meaningful magnitude. To the best of the authors’ knowledge, this study is the first to explore the effect of the takeover market on managerial risk-taking incentives, using a novel measure of takeover susceptibility. The authors’ measure of takeover vulnerability is considerably less susceptible to endogeneity, enabling the authors to draw causal inferences with more confidence. Click here to read the full text
Dr. Pattanaporn Chatjuthamard‘s research expertise includes Corporate Finance, Corporate Governance, and International Financial Markets.
About the journal: Corporate Governance: The International Journal of Business in Society provides a consistent source of in-depth information, analysis and advice considering corporate governance on an international scale, focusing on knowledge development, practice and performance standards.