Transformations  in
Business & Economics

IMPACT OF INSTITUTIONAL INVESTORS ON ENTERPRISE RISK-TAKING⁶
Lei Wei, Zhenjiang Dou, Jian Li, Bowen Zhu

ABSTRACT. With the development of Chinese securities markets, institutional investors have become vital to the operating decision of enterprises due to their increasing quantity and market value ratio. To explore the effects of institutional investors on enterprise risk-taking, their relations were investigated by using a fixed-effect model through panel data of China from 2008 to 2019. Moreover, the effects of enterprise heterogeneity on institutional investors and enterprise risk-taking were analysed. Results demonstrate that institutional investors are positively related to enterprise risk-taking. Institutional investors increase enterprise risk-taking capability. The positive correlation between institutional investors and enterprise risk-taking is more significant in state-owned enterprises, small-sized enterprises, and enterprises in regions where with marketization. The conclusions obtained from this study are constant after conducting the instrumental variable method and robustness verification. Institutional investors promote enterprise risk-taking capability by increasing enterprise information transparency and by relieving enterprise financing constraints. Conclusions shed light on the role of institutional investors in enterprise risk selection and how to improve the level of enterprise risk-taking and promote sound economic growth.

KEYWORDS:  institutional investors, risk-taking, heterogeneity.

JEL classification:  D21, G34, M21.

⁶Acknowledgments: This study was supported by the outstanding youth project of Education Bureau of Hunan Province, China (20B326), the construct program of the applied characteristic discipline: applied economics in Hunan Province, China (2018469) and the General Project of Hunan Social Science Achievement Evaluation Committee (XSP21YBC193).