Corporate governance, ownership and firm risk: disentangling effects in an emerging economy

What the paper says

Purpose This study investigates the moderating influence of distinct ownership structures, specifically promoter ownership (PO), institutional ownership (IO) and its sub-categories, domestic and foreign IO, on the relationship between corporate governance (CG) and firm risk-taking (FR) in the Indian context. Design/methodology/approach Using a panel dataset of 261 Indian listed firms (2014–2023), we employ the two-step system Generalised Method of Moments (GMM) estimation technique to address endogeneity and unobserved heterogeneity. CG is measured via a composite index, while FR is proxied by total and idiosyncratic risk. Findings The results indicate that robust CG, higher PO, and increased IO are independently associated with reduced FR. Crucially, both overall IO and foreign IO significantly moderate the CG-FR nexus; specifically, the negative impact of CG on FR is attenuated in the presence of higher overall IO and foreign IO, suggesting a positive interaction effect. In contrast, PO and domestic IO do not exhibit a significant moderating influence on the CG–FR relationship. Originality/value The study contributes to the CG literature by offering novel insights into how heterogeneous ownership types influence governance effectiveness in emerging markets. The study highlights the need for differentiated governance strategies that consider ownership profiles. Regulators should encourage transparency in institutional stewardship and promote board reforms that align risk oversight with long-term sustainability goals.