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31/07/2022
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Le, Q. M., & Nguyen, H. M. (2022). The moderation role of investment opportunities in modifying the impact of state ownership on corporate risk-taking behavior. Journal of International Economics and Management, 22(2), 42-55. https://doi.org/10.38203/jiem.022.2.0047
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The moderation role of investment opportunities in modifying the impact of state ownership on corporate risk-taking behavior
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Abstract
This research aims at examining the moderation role of investment opportunities in the effect of state ownership on risk-taking behavior. The financial data of non-financial listed firms in Hanoi and Ho Chi Minh stock exchanges are collected from Bloomberg. The sample includes firm observations during the period from 2015 to 2020 with 2,664 firm-year observations. The paper finds that state ownership negatively affects corporate risk-taking behavior. Investment opportunities are found to moderate the negative impact of state ownership on corporate risktaking activities. The findings are robust by year-fixed effects along with clustered standard errors. Based on these findings, two policy recommendations are provided. First, state-owned firms should improve their corporate governance to deal with agency problems. Second, the government should consider policies to encourage state-owned firms to increase their risktaking behavior.
Article Details
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Keywords
Investment opportunities, State ownership, Risk-taking
References
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Duho, K.C.T. (2021), “Impact of investment efficiency, investment scale and financial flexibility on risk-taking behaviour in an emerging market”, African Economic Research Consortium Working Paper Series CF001, Nairobi, Kenya.
Faccio, M., Marchica, M.T. and Mura, R. (2011), “Large shareholder diversification and corporate risk-taking”, The Review of Financial Studies, Vol. 24 No. 11, pp. 3601 - 3641.
Faccio, M., Marchica, M.T. and Mura, R. (2016), “CEO gender, corporate risk-taking, and the efficiency of capital allocation”, Journal of Corporate Finance, Vol. 39, pp. 193 - 209.
Fama, E.F. and Jensen, M.C. (1983), “Separation of ownership and control”, The Journal of Law and Economics, Vol. 26 No. 2, pp. 301 - 325.
Fan, J.P., Wong, T.J. and Zhang, T. (2007), “Politically connected CEOs, corporate governance, and post-IPO performance of China’s newly partially privatized firms”, Journal of Financial Economics, Vol. 84 No. 2, pp. 330 - 357.
Fazzari, S., Hubbard, R.G. and Petersen, B. (1988), “Financing constraints and corporate investment”, Brooking Papers on Economic Activity, Vol. 1, pp. 141 - 195.
Fonseka, M., Samarakoon, L.P., Tian, G.L. and Seng, R. (2021), “The impact of social trust and state ownership on investment efficiency of Chinese firms”, Journal of International Financial Markets, Institutions, and Money, Vol. 74, 101394.
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Hilary, G. and Hui, K.W. (2009), “Does religion matter in corporate decision making in America?”, Journal of Financial Economics, Vol. 93 No. 3, pp. 455 - 473.
Hoskisson, R.E., Chirico, F., Zyung, J. and Gambeta, E. (2017), “Managerial risk taking: a multitheoretical review and future research agenda”, Journal of Management, Vol. 43 No. 1, pp. 137 - 169.
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Jensen, M.C. and Meckling, W.H. (1976), “Theory of the firm: managerial behavior, agency costs and ownership structure”, Journal of Financial Economics, Vol. 3 No. 4, pp. 304 - 360.
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Lai, S.M. and Liu, C.L. (2018), “Management characteristics and corporate investment efficiency”, Asia-Pacific Journal of Accounting & Economics, Vol. 25 No. 3-4, pp. 295 - 312.
Lopez-Gutierrez, C., Sanfilippo-Azofra, S. and Torre-Olmo, B. (2015), “Investment decisions of companies in financial distress”, BRQ Business Research Quarterly, Vol. 18 No. 3, pp. 174 - 187.
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Myers, S.C. and Majluf, N.S. (1984), “Corporate financing and investment decisions when firms have information that investors do not have”, Journal of Financial Economics, Vol. 13 No. 2, pp. 187 - 221.
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Nguyen, T.T.H., Moslehpour, M., Vo, T.T.V. and Wong, W.K. (2020), “State ownership and risk-taking behavior: An empirical approach to get better profitability, investment, and trading strategies for listed corporates in Vietnam”, Economies, Vol. 8 No. 2, 46.
Panousi, V. and Papanikolaou, D. (2012), “Investment, idiosyncratic risk, and ownership”, The Journal of Finance, Vol. 67 No. 3, pp. 1113 - 1148.
Petersen, M.A. (2009), “Estimating standard errors in finance panel data sets: comparing approaches”, The Review of Financial Studies, Vol. 22 No. 1, pp. 435 - 480.
Phung, D.N. and Mishra, A.V. (2016), “Ownership structure and firm performance: evidence from Vietnamese listed firms”, Australian Economic Papers, Vol. 55 No. 1, pp. 63 - 98.
Su, K., Li, L. and Wan, R. (2017), “Ultimate ownership, risk-taking, and firm value: evidence from China”, Asia Pacific Business Review, Vol. 23 No. 1, pp. 10 - 26.
Uddin, M.H. (2015), “Government ownership in stock exchange listed corporate firms: an empirical study of the United Arab Emirates”, Corporate Ownership & Control, Vol. 12 No. 4, pp. 38 - 54.
Uddin, M.H. (2016), “Effect of government share ownership on corporate risk taking: case of the United Arab Emirates”, Research in International Business and Finance, Vol. 36, pp. 322 - 339.
Vo, X.V. (2016), “Foreign investors and corporate risk taking behavior in an emerging market”, Finance Research Letters, Vol. 18, pp. 273 - 277.
Vo, X.V. (2018), “Do firms with state ownership in transitional economies take more risk? Evidence from Vietnam”, Research in International Business and Finance, Vol. 46, pp. 251 - 256.
Wen, F., Li, C., Sha, H. and Shao, L. (2021), “How does economic policy uncertainty affect corporate risk-taking? Evidence from China”, Finance Research Letters, Vol. 41, 101840.
Zhai, S., Xie, L. and Zhang, S. (2017), “Bank connections and corporate risk-taking: evidence from China”, Asia-Pacific Journal of Accounting & Economics, Vol. 24 No. 1-2, pp. 183 - 194.
Zhou, K.Z., Gao, G.Y. and Zhao, H. (2017), “State ownership and firm innovation in China: an integrated view of institutional and efficiency logics”, Administrative Science Quarterly, Vol. 62 No. 2, pp. 375 - 404.
Boubaker, S., Nguyen, P. and Rouatbi, W. (2016), “Multiple large shareholders and corporate risk‐taking: evidence from French family firms”, European Financial Management, Vol. 22 No. 4, pp. 697 - 745.
Boubakri, N., Mansi, S.A. and Saffar, W. (2013), “Political institutions, connectedness, and corporate risk-taking”, Journal of International Business Studies, Vol. 44 No. 3, pp. 195 - 215.
Bramati, M.C. and Croux, C. (2007), “Robust estimators for the fixed effects panel data model”, The Econometrics Journal, Vol. 10 No. 3, pp. 521 - 540.
Cheng, T.Y., Lee, C.I. and Lin, C.H. (2020), “The effect of risk-taking behavior on profitability: evidence from futures market”, Economic Modelling, Vol. 86, pp. 19 - 38.
Dong, Y., Girardone, C. and Kuo, J.M. (2017), “Governance, efficiency, and risk-taking in Chinese banking”, The British Accounting Review, Vol. 49 No. 2, pp. 211 - 229.
Duho, K.C.T. (2021), “Impact of investment efficiency, investment scale and financial flexibility on risk-taking behaviour in an emerging market”, African Economic Research Consortium Working Paper Series CF001, Nairobi, Kenya.
Faccio, M., Marchica, M.T. and Mura, R. (2011), “Large shareholder diversification and corporate risk-taking”, The Review of Financial Studies, Vol. 24 No. 11, pp. 3601 - 3641.
Faccio, M., Marchica, M.T. and Mura, R. (2016), “CEO gender, corporate risk-taking, and the efficiency of capital allocation”, Journal of Corporate Finance, Vol. 39, pp. 193 - 209.
Fama, E.F. and Jensen, M.C. (1983), “Separation of ownership and control”, The Journal of Law and Economics, Vol. 26 No. 2, pp. 301 - 325.
Fan, J.P., Wong, T.J. and Zhang, T. (2007), “Politically connected CEOs, corporate governance, and post-IPO performance of China’s newly partially privatized firms”, Journal of Financial Economics, Vol. 84 No. 2, pp. 330 - 357.
Fazzari, S., Hubbard, R.G. and Petersen, B. (1988), “Financing constraints and corporate investment”, Brooking Papers on Economic Activity, Vol. 1, pp. 141 - 195.
Fonseka, M., Samarakoon, L.P., Tian, G.L. and Seng, R. (2021), “The impact of social trust and state ownership on investment efficiency of Chinese firms”, Journal of International Financial Markets, Institutions, and Money, Vol. 74, 101394.
Ha, N.T.T., Van, V.T.T. and Thu, P.A. (2019), “Institutional environment, government ownership, and firm profitability: empirical evidence from Vietnam”, Academy of Accounting and Financial Studies Journal, Vol. 23 No. 3, pp. 1 - 11.
Hair, J.F.J., Anderson, R.E., Tatham, R.L. and Black, W.C. (1995), Multivariate data analysis (3rd Ed.), New York: Macmillan.
Hilary, G. and Hui, K.W. (2009), “Does religion matter in corporate decision making in America?”, Journal of Financial Economics, Vol. 93 No. 3, pp. 455 - 473.
Hoskisson, R.E., Chirico, F., Zyung, J. and Gambeta, E. (2017), “Managerial risk taking: a multitheoretical review and future research agenda”, Journal of Management, Vol. 43 No. 1, pp. 137 - 169.
Jensen, M.C. (1986), “Agency costs of free cash flow, corporate finance, and takeovers”, American Economic Review, Vol. 76 No. 2, pp. 323 - 329.
Jensen, M.C. and Meckling, W.H. (1976), “Theory of the firm: managerial behavior, agency costs and ownership structure”, Journal of Financial Economics, Vol. 3 No. 4, pp. 304 - 360.
John, K., Litov, L. and Yeung, B. (2008), “Corporate governance and risk‐taking”, The Journal of Finance, Vol. 63 No. 4, pp. 1679 - 1728.
Lai, S.M. and Liu, C.L. (2018), “Management characteristics and corporate investment efficiency”, Asia-Pacific Journal of Accounting & Economics, Vol. 25 No. 3-4, pp. 295 - 312.
Lopez-Gutierrez, C., Sanfilippo-Azofra, S. and Torre-Olmo, B. (2015), “Investment decisions of companies in financial distress”, BRQ Business Research Quarterly, Vol. 18 No. 3, pp. 174 - 187.
Ming, Z., Ping, Z., Shunkun, Y. and Ge, Z. (2016), “Decision-making model of generation technology under uncertainty based on real option theory”, Energy Conversion and Management, Vol. 110, pp. 59 - 66.
Myers, S.C. and Majluf, N.S. (1984), “Corporate financing and investment decisions when firms have information that investors do not have”, Journal of Financial Economics, Vol. 13 No. 2, pp. 187 - 221.
Nakano, M. and Nguyen, P. (2012), “Board size and corporate risk taking: further evidence from Japan”, Corporate Governance: An International Review, Vol. 20 No. 4, pp. 369 - 387.
Nguyen, P. (2011), “Corporate governance and risk-taking: evidence from Japanese firms”, PacificBasin Finance Journal, Vol. 19 No. 3, pp. 278 - 297.
Nguyen, T.T.H., Moslehpour, M., Vo, T.T.V. and Wong, W.K. (2020), “State ownership and risk-taking behavior: An empirical approach to get better profitability, investment, and trading strategies for listed corporates in Vietnam”, Economies, Vol. 8 No. 2, 46.
Panousi, V. and Papanikolaou, D. (2012), “Investment, idiosyncratic risk, and ownership”, The Journal of Finance, Vol. 67 No. 3, pp. 1113 - 1148.
Petersen, M.A. (2009), “Estimating standard errors in finance panel data sets: comparing approaches”, The Review of Financial Studies, Vol. 22 No. 1, pp. 435 - 480.
Phung, D.N. and Mishra, A.V. (2016), “Ownership structure and firm performance: evidence from Vietnamese listed firms”, Australian Economic Papers, Vol. 55 No. 1, pp. 63 - 98.
Su, K., Li, L. and Wan, R. (2017), “Ultimate ownership, risk-taking, and firm value: evidence from China”, Asia Pacific Business Review, Vol. 23 No. 1, pp. 10 - 26.
Uddin, M.H. (2015), “Government ownership in stock exchange listed corporate firms: an empirical study of the United Arab Emirates”, Corporate Ownership & Control, Vol. 12 No. 4, pp. 38 - 54.
Uddin, M.H. (2016), “Effect of government share ownership on corporate risk taking: case of the United Arab Emirates”, Research in International Business and Finance, Vol. 36, pp. 322 - 339.
Vo, X.V. (2016), “Foreign investors and corporate risk taking behavior in an emerging market”, Finance Research Letters, Vol. 18, pp. 273 - 277.
Vo, X.V. (2018), “Do firms with state ownership in transitional economies take more risk? Evidence from Vietnam”, Research in International Business and Finance, Vol. 46, pp. 251 - 256.
Wen, F., Li, C., Sha, H. and Shao, L. (2021), “How does economic policy uncertainty affect corporate risk-taking? Evidence from China”, Finance Research Letters, Vol. 41, 101840.
Zhai, S., Xie, L. and Zhang, S. (2017), “Bank connections and corporate risk-taking: evidence from China”, Asia-Pacific Journal of Accounting & Economics, Vol. 24 No. 1-2, pp. 183 - 194.
Zhou, K.Z., Gao, G.Y. and Zhao, H. (2017), “State ownership and firm innovation in China: an integrated view of institutional and efficiency logics”, Administrative Science Quarterly, Vol. 62 No. 2, pp. 375 - 404.