Multiple Large Shareholders and Corporate Risk Taking: Evidence from East Asia


Dev R. Mishra, University of Saskatchewan, Finance and Management Science, 25 Campus Drive, Saskatoon, Saskatchewan, Canada S7N 4M5. E-mail:


Manuscript Type: Empirical

Research Question/Issue: Prior literature suggests that weak external governance mechanisms negatively affect corporate risk taking (CRT). However, strong internal governance is likely to mitigate the shortcomings of external governance. In a sample of East Asian firms, we examine whether the presence and voting power of multiple large shareholders (MLS) beyond the dominant shareholder effectively manage internal governance and mitigate agency problems, as measured by their effect on CRT.

Research Findings/Insights: In a sample of 1,686 firms from nine countries, while the presence of a dominant shareholder is associated with a lower CRT, the presence and voting rights of the MLS are strongly associated with a higher CRT. Furthermore, the effect of the MLS on CRT is strongly positive in family dominated firms (as opposed to non-family dominated firms).

Theoretical/Academic Implications: We interpret these findings as evidence that in firms featuring a dominant shareholder with the power and incentives to extract private benefits of control by undertaking a conservative investment policy, the power and presence of MLS improve internal governance by mitigating agency problems between the dominant shareholder and minority shareholders and help promote a more optimal non-conservative investment policy.

Practitioner/Policy Implications: In countries where financial markets are still developing and in countries where the dominant shareholder structures are widespread, the policy makers may encourage MLS structures in general and in the privatization of state enterprises.