IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v9y2017i2p173-d88792.html
   My bibliography  Save this article

Approaches on Correlation between Board of Directors and Risk Management in Resilient Economies

Author

Listed:
  • Daniel Ştefan Armeanu

    (Department of Finance, The Bucharest University of Economic Studies, 6 Piata Romana, Bucharest 010374, Romania)

  • Georgeta Vintilă

    (Department of Finance, The Bucharest University of Economic Studies, 6 Piata Romana, Bucharest 010374, Romania)

  • Ştefan Cristian Gherghina

    (Department of Finance, The Bucharest University of Economic Studies, 6 Piata Romana, Bucharest 010374, Romania)

  • Dan Cosmin Petrache

    (Department of Agro-Food and Environmental Economics, The Bucharest University of Economic Studies, 6 Piata Romana, Bucharest 010374, Romania)

Abstract

The recent financial crisis highlighted the need for a strong emphasis on the effectiveness of board risk oversight practices. Good corporate governance upholds effective risk management, which in turn ensures the flexibility to reply to unpredicted threats and take benefit of opportunities. Thus, risk management affords corporate resilience that engenders competitive advantage due to the capacity to circumvent, deter, defend, react, and adjust to any kind of disturbance, besides recovering quickly. Guaranteeing that the board is prepared and adequately resilient to deal with a crisis circumstance is a crucial part of good governance. By employing a data set of companies listed in Romania, this paper analyzes whether boards of directors influence risk management. We measure boards by means of size, independence, diversity, establishment of Consultative Committees, as well as CEO duality, gender, age, and tenure. Based on ten financial ratios, we develop two risk indicators regarding shareholders’ wealth and short-term risk, alongside a global business failure risk tool, by means of principal component analysis. Furthermore, the output of the multivariate regression analysis show that CEO gender, the size of the board, and Audit Committee negatively influence business failure risk.

Suggested Citation

  • Daniel Ştefan Armeanu & Georgeta Vintilă & Ştefan Cristian Gherghina & Dan Cosmin Petrache, 2017. "Approaches on Correlation between Board of Directors and Risk Management in Resilient Economies," Sustainability, MDPI, vol. 9(2), pages 1-15, January.
    • Handle: RePEc:gam:jsusta:v:9:y:2017:i:2:p:173-:d:88792
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/9/2/173/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/9/2/173/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Lampel, Joseph & Bhalla, Ajay & Jha, Pushkar P., 2014. "Does governance confer organisational resilience? Evidence from UK employee owned businesses," European Management Journal, Elsevier, vol. 32(1), pages 66-72.
    2. Alessandro Bucciol & Raffaele Miniaci, 2011. "Household Portfolios and Implicit Risk Preference," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1235-1250, November.
    3. Klein, April, 2002. "Audit committee, board of director characteristics, and earnings management," Journal of Accounting and Economics, Elsevier, vol. 33(3), pages 375-400, August.
    4. Teixeira, Eduardo de Oliveira & Werther, William B., 2013. "Resilience: Continuous renewal of competitive advantages," Business Horizons, Elsevier, vol. 56(3), pages 333-342.
    5. Zoltan Matolcsy & Donald Stokes & Anna Wright, 2004. "Do Independent Directors Add Value?," Australian Accounting Review, CPA Australia, vol. 14(32), pages 33-40, March.
    6. Nick Williams & Tim Vorley, 2014. "Economic resilience and entrepreneurship: lessons from the Sheffield City Region," Entrepreneurship & Regional Development, Taylor & Francis Journals, vol. 26(3-4), pages 257-281, May.
    7. Minton, Bernadette A. & Taillard, Jérôme P. & Williamson, Rohan, 2014. "Financial Expertise of the Board, Risk Taking, and Performance: Evidence from Bank Holding Companies," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 49(2), pages 351-380, April.
    8. Michael C. Jensen, 2010. "The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 43-58, January.
    9. Chia-Jane Wang, 2012. "Board size and firm risk-taking," Review of Quantitative Finance and Accounting, Springer, vol. 38(4), pages 519-542, May.
    10. Renée B. Adams & Patricia Funk, 2012. "Beyond the Glass Ceiling: Does Gender Matter?," Management Science, INFORMS, vol. 58(2), pages 219-235, February.
    11. Berger, Allen N. & Kick, Thomas & Schaeck, Klaus, 2014. "Executive board composition and bank risk taking," Journal of Corporate Finance, Elsevier, vol. 28(C), pages 48-65.
    12. Paul Shrivastava & Amr Addas, 2014. "The Impact of Corporate Governance on Sustainability Performance," Post-Print hal-01513941, HAL.
    13. Serfling, Matthew A., 2014. "CEO age and the riskiness of corporate policies," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 251-273.
    14. Mark A. Bliss & Balachandran Muniandy & Abdul Majid, 2007. "CEO duality, audit committee effectiveness and audit risks: A study of the Malaysian market," Managerial Auditing Journal, Emerald Group Publishing, vol. 22(7), pages 716-728, July.
    15. Daniela Beckmann & Lukas Menkhoff, 2008. "Will Women Be Women? Analyzing the Gender Difference among Financial Experts," Kyklos, Wiley Blackwell, vol. 61(3), pages 364-384, August.
    16. Yermack, David, 1996. "Higher market valuation of companies with a small board of directors," Journal of Financial Economics, Elsevier, vol. 40(2), pages 185-211, February.
    17. Corinne Post & Noushi Rahman & Cathleen McQuillen, 2015. "From Board Composition to Corporate Environmental Performance Through Sustainability-Themed Alliances," Journal of Business Ethics, Springer, vol. 130(2), pages 423-435, August.
    18. Paul Shrivastava & Amr Addas, 2014. "The impact of corporate governance on sustainability performance," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 4(1), pages 21-37, January.
    19. Markman, Gideon M. & Venzin, Markus, 2014. "Resilience: Lessons from banks that have braved the economic crisis—And from those that have not," International Business Review, Elsevier, vol. 23(6), pages 1096-1107.
    20. Hermalin, Benjamin E & Weisbach, Michael S, 1998. "Endogenously Chosen Boards of Directors and Their Monitoring of the CEO," American Economic Review, American Economic Association, vol. 88(1), pages 96-118, March.
    21. Castellacci, Fulvio, 2015. "Institutional Voids or Organizational Resilience? Business Groups, Innovation, and Market Development in Latin America," World Development, Elsevier, vol. 70(C), pages 43-58.
    22. Wang, Tawei & Hsu, Carol, 2013. "Board composition and operational risk events of financial institutions," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 2042-2051.
    23. Bengt Holmström, 1999. "Managerial Incentive Problems: A Dynamic Perspective," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 66(1), pages 169-182.
    24. Eliezer Fich & Steve Slezak, 2008. "Can corporate governance save distressed firms from bankruptcy? An empirical analysis," Review of Quantitative Finance and Accounting, Springer, vol. 30(2), pages 225-251, February.
    25. Peter Heslin & Lex Donaldson, 1999. "An Organizational Portfolio Theory of Board Composition," Corporate Governance: An International Review, Wiley Blackwell, vol. 7(1), pages 81-88, January.
    26. Sabatino, Michele, 2016. "Economic crisis and resilience: Resilient capacity and competitiveness of the enterprises," Journal of Business Research, Elsevier, vol. 69(5), pages 1924-1927.
    27. Rachel Croson & Uri Gneezy, 2009. "Gender Differences in Preferences," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 448-474, June.
    28. Liang, Deron & Lu, Chia-Chi & Tsai, Chih-Fong & Shih, Guan-An, 2016. "Financial ratios and corporate governance indicators in bankruptcy prediction: A comprehensive study," European Journal of Operational Research, Elsevier, vol. 252(2), pages 561-572.
    29. Bengt Holmstrom, 1999. "Managerial Incentive Problems: A Dynamic Perspective," NBER Working Papers 6875, National Bureau of Economic Research, Inc.
    30. Donald C. Hambrick & Richard A. D'Aveni, 1992. "Top Team Deterioration as Part of the Downward Spiral of Large Corporate Bankruptcies," Management Science, INFORMS, vol. 38(10), pages 1445-1466, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Isaih Dzingai & Michael Bamidele Fakoya, 2017. "Effect of Corporate Governance Structure on the Financial Performance of Johannesburg Stock Exchange (JSE)-Listed Mining Firms," Sustainability, MDPI, vol. 9(6), pages 1-15, June.
    2. Nora Muñoz-Izquierdo & María-del-Mar Camacho-Miñano & María-Jesús Segovia-Vargas & David Pascual-Ezama, 2019. "Is the External Audit Report Useful for Bankruptcy Prediction? Evidence Using Artificial Intelligence," IJFS, MDPI, vol. 7(2), pages 1-23, April.
    3. Oliver Lukason & María-del-Mar Camacho-Miñano, 2021. "What Best Explains Reporting Delays? A SME Population Level Study of Different Factors," Sustainability, MDPI, vol. 13(9), pages 1-15, April.
    4. Felix Laumann & Torben Tambo, 2018. "Enterprise Architecture for a Facilitated Transformation from a Linear to a Circular Economy," Sustainability, MDPI, vol. 10(11), pages 1-16, October.
    5. Songling Yang & Muhammad Ishtiaq & Muhammad Anwar, 2018. "Enterprise Risk Management Practices and Firm Performance, the Mediating Role of Competitive Advantage and the Moderating Role of Financial Literacy," JRFM, MDPI, vol. 11(3), pages 1-17, June.
    6. Ilyass Chaker, 2022. "Les caractéristiques des comités d'audit : Déterminants de la performance financière et de la qualité informationnelle ?," Post-Print hal-03680709, HAL.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Renee B. Adams & Benjamin E. Hermalin & Michael S. Weisbach, 2010. "The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey," Journal of Economic Literature, American Economic Association, vol. 48(1), pages 58-107, March.
    2. Aman, Hiroyuki & Nguyen, Pascal, 2013. "Does good governance matter to debtholders? Evidence from the credit ratings of Japanese firms," Research in International Business and Finance, Elsevier, vol. 29(C), pages 14-34.
    3. Akbar, Saeed & Kharabsheh, Buthiena & Poletti-Hughes, Jannine & Shah, Syed Zulfiqar Ali, 2017. "Board structure and corporate risk taking in the UK financial sector," International Review of Financial Analysis, Elsevier, vol. 50(C), pages 101-110.
    4. Unda, Luisa A. & Ranasinghe, Dinithi, 2021. "To pay or not pay: Board remuneration and insolvency risk in credit unions," Pacific-Basin Finance Journal, Elsevier, vol. 66(C).
    5. Zhou, Yifan & Kara, Alper & Molyneux, Philip, 2019. "Chair-CEO generation gap and bank risk-taking," The British Accounting Review, Elsevier, vol. 51(4), pages 352-372.
    6. Chenglong Zheng & Roy Kouwenberg, 2019. "A Bibliometric Review of Global Research on Corporate Governance and Board Attributes," Sustainability, MDPI, vol. 11(12), pages 1-25, June.
    7. Fu, Yishu, 2019. "Independent directors, CEO career concerns, and firm innovation: Evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    8. Brogi, Marina & Lagasio, Valentina, 2022. "Better safe than sorry. Bank corporate governance, risk-taking, and performance," Finance Research Letters, Elsevier, vol. 44(C).
    9. Fan, Yaoyao & Jiang, Yuxiang & Jin, Pengcheng & Mai, Yong, 2023. "CEO network centrality and bank risk: Evidence from US Bank holding companies," Journal of Corporate Finance, Elsevier, vol. 83(C).
    10. Maria Boutchkova & Angelica Gonzalez & Brian G.M. Main & Vathunyoo Sila, 2021. "Gender diversity and the spillover effects of women on boards," Corporate Governance: An International Review, Wiley Blackwell, vol. 29(1), pages 2-21, January.
    11. Benson, Bradley W. & Chen, Yu & James, Hui L. & Park, Jung Chul, 2020. "So far away from me: Firm location and the managerial ownership effect on firm value," Journal of Corporate Finance, Elsevier, vol. 64(C).
    12. García, C. José & Herrero, Begoña, 2022. "Corporate entrepreneurship and governance: Mergers and acquisitions in Europe," Technological Forecasting and Social Change, Elsevier, vol. 182(C).
    13. Korkeamäki, Timo & Liljeblom, Eva & Pasternack, Daniel, 2017. "CEO power and matching leverage preferences," Journal of Corporate Finance, Elsevier, vol. 45(C), pages 19-30.
    14. Sila, Vathunyoo & Gonzalez, Angelica & Hagendorff, Jens, 2016. "Women on board: Does boardroom gender diversity affect firm risk?," Journal of Corporate Finance, Elsevier, vol. 36(C), pages 26-53.
    15. Chari, Murali D.R. & David, Parthiban & Duru, Augustine & Zhao, Yijiang, 2019. "Bowman's risk-return paradox: An agency theory perspective," Journal of Business Research, Elsevier, vol. 95(C), pages 357-375.
    16. Talavera, Oleksandr & Yin, Shuxing & Zhang, Mao, 2018. "Age diversity, directors' personal values, and bank performance," International Review of Financial Analysis, Elsevier, vol. 55(C), pages 60-79.
    17. Catarina Fernandes & Jorge Farinha & Francisco Vitorino Martins & Cesario Mateus, 2018. "Bank governance and performance: a survey of the literature," Journal of Banking Regulation, Palgrave Macmillan, vol. 19(3), pages 236-256, July.
    18. Galletta, Simona & Mazzù, Sebastiano & Scannella, Enzo, 2021. "Risk committee complexity and liquidity risk in the European banking industry," Journal of Economic Behavior & Organization, Elsevier, vol. 192(C), pages 691-703.
    19. Jia Lu & Agyenim Boateng, 2018. "Board composition, monitoring and credit risk: evidence from the UK banking industry," Review of Quantitative Finance and Accounting, Springer, vol. 51(4), pages 1107-1128, November.
    20. Jiao Ji & Oleksandr Talavera & Shuxing Yin, 2018. "The Hidden Information Content: Evidence from the Tone of Independent Director Reports," Working Papers 2018-28, Swansea University, School of Management.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:9:y:2017:i:2:p:173-:d:88792. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.