Impact Of Corporate Insider, Blockholder, And Institutional Equity Ownership On Firm Risk Taking

Abstract

The nature of a firm's risk-taking behavior can significantly affect corporate performance. In an agency context, we examined the influence of equity ownership structure upon corporate risk taking. Results support our premise that the wealth portfolios of corporate insiders may influence firm risk taking. They also support our analysis of entrenchment theory and our presumption that financial and nonfinancial benefits or costs may, at high levels of stock ownership, induce executive decisions inconsistent with growth-oriented risk taking. Institutional owners exerted a significant, positive influence on risk taking, but the role of blockholders was negligible. Finally, ownership structure affected corporate risk taking in the presence of growth opportunities, represented by Tobin's q.