Abstract
Using a large sample of 48,548 firms in 72 countries from 2000 to 2008, we examine how foreign institutional ownership affects corporate risk-taking and stock price crash risk. We find foreign institutional ownership is positively associated with corporate risk-taking, while domestic institutional ownership is negatively associated with it. Foreign institutional ownership substitutes for country-level corporate governance in determining corporate risk-taking. Crash risk is a potential negative side effect associated with risk-taking. We find when a firm takes more risks, foreign direct investors’ ownership significantly reduces the firm’s crash risk. In contrast, domestic institutional investors’ ownership significantly increases it.
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