Institutional Ownership and Corporate Risk-taking: Indian Evidence

Abstract

The study examines the impact of institutional ownership on corporate risk-taking in India. It further differentiates institutional ownership into domestic and foreign categories and examines their respective influences on corporate risk-taking, alongside assessing the moderating role of the COVID-19 pandemic. The present study is based on a panel data set of 100 non-financial Indian firms randomly selected from the top 500 firms listed on the Bombay Stock Exchange, covering the period from 2013 to 2022. The study employs two market-based risk measures—total and idiosyncratic risk—to capture corporate risk-taking. Fixed effects panel data model, along with generalized estimating equations and generalized method of moments, is used to ensure robustness of results. The study finds a significant negative impact of institutional ownership on corporate risk-taking. Specifically, domestic institutional ownership significantly reduces corporate risk-taking, whereas foreign institutional ownership shows no significant impact. Furthermore, the COVID-19 crisis does not moderate the relationship between institutional ownership and corporate risk-taking or domestic institutional ownership and corporate risk-taking. However, it positively moderates the relationship between foreign institutional ownership and corporate risk-taking. The insights hold immense value for policymakers, regulators and industry practitioners. To the best of the authors’ knowledge, the present study is a maiden attempt to investigate the impact of domestic and foreign institutional ownership on corporate risk-taking in the Indian context. Furthermore, this is the first study to examine the moderating role of COVID-19 on relationships. Additionally, the study incorporates idiosyncratic risk as an additional measure of corporate risk-taking, largely overlooked in the Indian context.