Board attributes that increase firm risk - evidence from the UK

Purpose – The aim of the paper is to identify the board attributes that significantly increase firm risk. The study aims to find if board size, percentage of non-executive directors, women on the board, a powerful CEO, equity ownership amongst executive board directors and institutional investor ownership, are associated with firm risk. This is the first study that examines which board attributes increase firm risk using a UK based sample.
Design/methodology/approach – This empirical study collected secondary data from Bloomberg and Morningstar databases. The data sample is an unbalanced panel of 260
companies’ secondary data on FTSE 350 index in the UK, from 2005 to 2010. The data was statistically analysed using STATA.
Findings – The study establishes the board attributes that were significantly related to firm risk. The results show that a board which can increase firm risk is one that is small in size,has high equity ownership amongst executive board directors and has high institutional investor ownership.
Research limitations/implications – The governance culture and regulatory system in the UK is different from other countries. Since the data is a UK based sample, the results can lack generalisability.
Practical implications – The results are useful for investors who invest in large firms, to
have the knowledge about the board attributes that can increase firm risk. Regulators can also
use the results to strengthen regulatory guidelines.
Originality/value – This study fills the gap in knowledge in UK governance literature on the
board attributes that can increase firm risk.