CORPORATE RISK TAKING AND FINANCIAL CRISIS: THE ROLE OF INSTITUTIONAL INVESTORS

Institutional investors have been playing a major role as active institutional investors in propagating financial crisis to the real economy. Thus, we study the relation between institutional ownership structure and corporate risk taking for a sample of companies from 21 OECD countries for the period 2001-2008. Our results suggest that financial deregulation process before 2007 financial crisis promoted corporate risk taking, especially in countries where creditors' rights are not well protected. We also find that the lack of effective control mechanisms permitted that both investment funds and commercial banks clearly assume an active attitude towards companies, leading to an overinvestment in risky projects.