The Impact of Ownership Types on Corporate Risk Taking

Abstract

This research empirically test the impact of ownership structure on corporate risk taking using listed Pakistani firms over the period of 2000 to 2020. Ownership structure in this paper is categorized into Foreign, State, Insider, Investment Management Company’s and General Public ownership. Risk is proxied with the standard deviation of ROA over the past 5 year’s window and market beta. The target population of the study is all the companies listed in PSX, out of which 593 is taken as a sample. By using panel data, the results suggests the ownership variables like insider, institution, general public and foreign ownership is positively while government ownership is in an indirect correlation with risk taking. The control variable leverage, growth and ROA are positively while firm size and capital expenditure is negatively associated with risk taking. Insider like managers normally avoids risk due to their career concerns i.e job loss, reputation, loss of control. But if they own significant stakes in the company then their interest becomes aligned with the shareholder’s interest which then results in higher risk taking. Various investors can predict the future risk taking behavior of a corporate on the basis of ownership compositions, which might help them to include stocks of a corporate in their portfolio that might suits to their risk preferences.