Ownership Structure, Liquidity And Corporate Risk Taking

Comparing and analyzing the unique ownership structure and split share reformof Chinese listed SOCs and family firms, we investigate the response of corporate risktaking to the defects of the property rights of the controlling shareholders. Specifically,we study whether the constraints on cash flow rights for SOCs’ controllers and theprohibition of share liquidity of both SOCs and family firms will affect corporate riskchoices in corporate investment decisions. We find that SOCs, whose controllers aregovernment bureaucrats and residual cash flow claimants are Treasury, would like toundertake less risky project compared with family firms whose controllers obtain bothcash flow rights and control rights. Moreover, the time-series tests utilize theprivatization of SOCs to family firms support the argument as well. After we dividedrisk-taking into systematic risk taking and unsystematic risk, we find that theunsystematic risk is more pronounced for family firms. Finally, we find that theprohibition on share liquidity significantly affects corporate risk taking. Corporaterisk taking level sharply increased after the removal of share liquidity prohibition, andnot surprisingly, the effect is more pronounced for family firms.