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Board faultlines and risk-taking

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  • Pu, Guifang
  • Xie, Yanxiang
  • Wang, Kai

Abstract

We use the 2009–2020 data of Chinese A-share non-financial listed companies to explore the impact of board faultlines on corporate risk-taking. The results show that: (1) Board faultlines reduce corporate risk-taking capacity, and mainly manifested as a decline in idiosyncratic risk-taking. (2) The impact of faultlines is primarily driven by faultlines of cognitive characteristics; the impact of faultlines of demographic characteristics is insignificant. (3) Board faultlines influence corporate risk-taking by disrupting internal board order, lowering its monitoring willingness and ability, and reducing investment efficiency. (4) The heterogeneity test results identify four firm-level factors: industry competition, performance pressure, financial risk, and equity incentives, which can activate faultlines.

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  • Pu, Guifang & Xie, Yanxiang & Wang, Kai, 2023. "Board faultlines and risk-taking," Finance Research Letters, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322005815
    DOI: 10.1016/j.frl.2022.103404
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    Cited by:

    1. Elshandidy, Tamer & Bamber, Matthew & Omara, Hossam, 2024. "Across the faultlines: A multi-dimensional index to measure and assess board diversity," International Review of Financial Analysis, Elsevier, vol. 93(C).
    2. Wang, Bin & Wang, Liang & Gong, Bairong & Yan, Zhengwei & Hu, Pan, 2023. "Does broadband internet infrastructure mitigate firm-level economic policy uncertainty? Evidence from the Broadband China Pilot Policy," Economics Letters, Elsevier, vol. 232(C).

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    More about this item

    Keywords

    Board faultlines; Risk-taking; Social identity theory; Faultlines theory;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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