Corporate Risk-Taking in Privatized Firms: International Evidence on the Role of State and Foreign Owners

Abstract

Using a unique database of 190 newly privatized firms from 36 countries, we investigate the impact of shareholders’ identify on corporate risk-taking behavior. We find strong and robust evidence that state (foreign) ownership is negatively (positively) related to corporate risk-taking. Moreover, we find that these relations depend on the level of government extraction. Our results suggest that relinquishment of government control, openness to foreign investment, and improvement of country-level governance institutions are key factors in the success of privatization reform.