Corporate Governance and Firm Risk

Mathew, S., Ibrahim, S. and Archbold, S. 2018. Corporate Governance and Firm Risk. Corporate Governance: The international journal of business in society. 18 (1), pp. 52-67. https://doi.org/10.1108/CG-02-2017-0024

TitleCorporate Governance and Firm Risk
TypeJournal article
AuthorsMathew, S., Ibrahim, S. and Archbold, S.
Abstract

This study explores the relationship between the board governance structure and firm risk. Specifically, we develop a ‘Governance index’ based on four different aspects of the board: 1. Board composition, 2. Board leadership structure, 3. Board member characteristics and 4. Board processes and examine how the overall index relates to firm risk.
The study is conducted using a sample of 268 UK firms from the FTSE 350 index, over the period 2005 to 2010. An index is constructed to capture the overall governance structure of the firm. Regressions of the index on three risk measures are examined.
We find that the governance index that aggregates the four sets of board attributes is significantly negatively related to firm risk. Robustness tests confirm this result.
A large number of studies have explored the relationship between the attributes of corporate boards and firm performance, with mixed results. A much smaller number of studies have looked at board attributes and firm risk, but these have either focused on financial sector firms alone, or have included only a single or a limited number of attributes. This study, utilizing a broad agency framework, seeks to extend the work on firm risk and board attributes, by both expanding industry sectors examined and employing a comprehensive set of board attributes.
The findings have policy and practical implications for investors, regulators, and chairmen of boards of governors to the extent that they inform these constituencies about the set of board attributes that are associated with firm risk. This study is the first to utilize a comprehensive measure of governance and relate it to firm risk.

KeywordsCorporate Governance, Board Attributes, Governance Index, Firm Risk
JournalCorporate Governance: The international journal of business in society
Journal citation18 (1), pp. 52-67
ISSN1472-0701
Year2018
PublisherEmerald
Accepted author manuscript
Digital Object Identifier (DOI)https://doi.org/10.1108/CG-02-2017-0024
Publication dates
Published20 Dec 2017
Published online20 Dec 2017
Published in print2018

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