Impact of Financial Liberalization on Firm Risk


  • Chong-Chuo Chang Department of Banking and Finance College of Management, National Chi Nan University Author
  • Lin Lin Department of Banking and Finance Newhuadu Business School, Minjiang University Author
  • Yu-Cheng Chang Department of Leisure and Recreation Management College of Management, Asia University Corresponding Author
  • Kun-Zhan Hsu Department of Banking and Finance College of Management, National Chi Nan University Author



Liberalization, Financial Liberalization, Firm Risk, Risk Management, Economic Development


Purpose: This study investigates the impact of financial liberalization on firm risk and examines the relationship between liberalization and firm risk from a global perspective by using three different measures of financial liberalization to analyze the entire sample as well as four different subsamples by using firms from different countries as our samples.

Design/methodology/approach: We use the pooled ordinary least squared (OLS) regression model and a series of robustness checks to conduct our analysis by using our sample that includes 63 countries, 18,317 firms, and 161,317 firm-year observations from 1991–2017.

Findings: Our empirical analysis concludes that financial liberalization has a significantly negative effect on firm risk. Following a series of robustness checks, we find that the results remain unchanged after categorizing our sample into subsamples according to the level of financial liberalization, controlling for changes in the economic development status, and dividing the sample periods based on the time of the financial crises. Moreover, the quantile regression reveals the asymmetric effect of financial liberalization on firm risk. The findings of our study contribute to a clear perception of how financial liberalization affects firm risk.

Originality/value: In this paper, we use the data from multination to know clearly how different countries respond to the financial liberalization policies which may affect the firm risk. Then, we conduct a series of robustness checks to make sure that our result is robust.  According to the result, we can see that the negative significant relationship between financial liberalization and firm risk remains unchanged after categorizing our sample into subsamples according to the level of financial liberalization, controlling for changes in the economic development status, and dividing the sample periods based on the time of the financial crises. Furthermore, the quantile regression reveals the asymmetric effect of financial liberalization on firm risk. We note that our findings are new in the literature.

Practical Implication: The findings of our paper give suggestions to multinational corporations regarding the proper management of corporate finance in response to adjustments in financial liberalization policies.


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How to Cite

Chong-Chuo Chang, Lin, L., Chang, Y.-C., & Hsu, K.-Z. (2023). Impact of Financial Liberalization on Firm Risk. Advances in Decision Sciences, 27(3), 14-45.