Effect of government share ownership on corporate risk taking: Case of the United Arab Emirates

• Principal–principal conflict aggravates if government is the minority owner in a firm.
• This is because powerful minority owner exerts political pressure on the majority private owners.
• Hence, government minority firms take less risk due to strong conflict with the majority owners.
• I find that relationship between government ownership and risk taking is a non-linear U-shaped.
• This single country case study does not confirm the prior cross-country findings.

If government holds ownership in corporate firms, principal–principal conflict may arise between government and private owners. I argue conflict aggravates when government is minority owner, because the powerful minority owner (government) exerts political pressure on the majority private owners to achieve government objectives. Hence, government minority firms are likely to be conservative in risk taking due to the existence of principal–principal conflict. I provide supporting evidence from the United Arab Emirates, which has the highest record of government ownership in stock exchange listed firms of any country. However, the relationship between government ownership and risk taking is a non-linear U-shaped.