Manager Power、Institutional Ownership And Firm Risk Taking

In the environment of global economic downturn, After more than30years’ development, China’s economy seems to have entered into a slump period, the market environment is becoming more and more complicated and the enterprise strategic decision-making risk increased greatly, creating an imperia to the survival and development of enterprises. Meantime, the traditional thinking of entrepreneurs who have grown up in the China’s reform and opening up process may suffer a great challenge in the dynamic environment. Thus, exploring the role of manager in the firm risk taking is necessary. Since the enterprise risks are the direct consequence of the enterprise decision making which is closely related to the power, this paper mainly focuses on the relationship between manager power and firm risk taking. Furthermore, with the rapid rise of institutional investors, their role in the corporate governance has aroused widespread discussions around scholars, who come to two opposite conclusions. Thus, whether the institutional investors can supervise the manager’s actions so to improve the corporate governance is a problem need to be further studied. Therefore, With the corporate governance as the principal line, this paper focuses on the role of institutional investors on the relationship between manager power and firm risk taking.Based on the reviews to the previous literature, this paper proposes the theoretical hypothesis, arguing that formal and informal manager power have different influences on the firm risk taking. Furthermore, with the share holdings increase, the institutional investors will actively participate in the corporate governance, supervising manager behavior so as to affect the firm risk taking. Taking the2009-2011stock market board corporations as object of study, this paper adopts the Logistic hierarchical regression to test the hypothesis proposed above, drawing the following conclusions:the negative relationship between formal power and firm risk taking is not significant; informal power (both ownership power and stable status power) is positively related to firm risk taking; under the condition of lower institutional ownership, manager formal power and firm risk taking is negatively related, while under the condition of higher institutional ownership, manager formal power and firm risk taking is positively correlated; the ownership power will be more positively associated with firm risk taking under the higher institutional ownership than the lower institutional ownership.Finally, based on the empirical results, this paper raises the following proposal on the corporate governance practice:appropriate implementation of the management equity incentive; maintain the moderate stability of manager position; introduce institutional investors according to the manager’s power; limit the over concentration of ownership.