Working Paper: NBER ID: w14931
Authors: Shnke M. Bartram; Gregory Brown; Ren M. Stulz
Abstract: Using a large panel of firms across the world from 1991-2006, we show that the median foreign firm has lower idiosyncratic risk than a comparable U.S. firm. Country characteristics help explain variation in the level of idiosyncratic risk, but less so than firm characteristics. Idiosyncratic risk falls as government stability and respect for the rule of law improve. Idiosyncratic risk is positively related to stock market development but negatively related to bond market development. Surprisingly, we find that idiosyncratic risk is generally negatively related to corporate disclosure quality. Finally, idiosyncratic risk generally increases with shareholder protection. Though there is evidence that R² increases with creditor rights and falls with the quality of disclosure, these results are driven by the relations between these variables and systematic risk rather than by the impact of these variables on idiosyncratic risk.
Keywords: No keywords provided
JEL Codes: E44; G12; G14; G15; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| country characteristics (O57) | idiosyncratic risk (D81) |
| government stability (P16) | idiosyncratic risk (D81) |
| financial development (O16) | idiosyncratic risk (D81) |
| stock market development (G10) | idiosyncratic risk (D81) |
| bond market development (G10) | idiosyncratic risk (D81) |
| corporate disclosure quality (G38) | idiosyncratic risk (D81) |
| shareholder protection (G38) | idiosyncratic risk (D81) |
| creditor rights (G33) | idiosyncratic risk (D81) |