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The nexus between corporate governance, risk taking, and growth

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  • Alin Marius Andries
  • Daniela Balutel
  • Iulian Ihnatov
  • Silviu Gabriel Ursu

Abstract

In this study we assess the impact of corporate governance on the risk investment behavior of firms and its implications on firms’ growth rate. Using a sample of non-financial companies from 10 countries over a period leading to the recent global financial crisis, we documented that the corporate governance has a nonlinear (inverted U-shape) impact on the companies’ investment risk, meaning that the investment risk is increasing up to a level of corporate governance of 0.61 (as measured by our comprehensive index), while at higher levels of corporate governance the investment risk is decreasing. For the models of sales growth and assets growth it is shown that predicted investment risk has a positive effect on firms’ growth measures. Moreover, the two growth models are not moving independently and a shock to one of the growth measures (sales or assets) affects the other growth measure in the same direction. Additionally, we evaluated the effect of financial crisis on both the growth measures and the risk measure. The effect of financial crisis was captured in both measures in 2009, with higher impact on the growth of sales.

Suggested Citation

  • Alin Marius Andries & Daniela Balutel & Iulian Ihnatov & Silviu Gabriel Ursu, 2020. "The nexus between corporate governance, risk taking, and growth," PLOS ONE, Public Library of Science, vol. 15(2), pages 1-24, February.
    • Handle: RePEc:plo:pone00:0228371
    DOI: 10.1371/journal.pone.0228371
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    Cited by:

    1. Guadalupe Manzano-García & Juan-Carlos Ayala-Calvo, 2020. "Entrepreneurial Orientation: Its Relationship with the Entrepreneur’s Subjective Success in SMEs," Sustainability, MDPI, vol. 12(11), pages 1-17, June.
    2. Xiaodong Teng & Kun-Shan Wu & Lopin Kuo & Bao-Guang Chang, 2023. "Investigating the double-edged sword effect of environmental, social and governance practices on corporate risk-taking in the high-tech industry," Oeconomia Copernicana, Institute of Economic Research, vol. 14(2), pages 511-549, June.
    3. García, C. José & Herrero, Begoña, 2021. "Female directors, capital structure, and financial distress," Journal of Business Research, Elsevier, vol. 136(C), pages 592-601.
    4. Do Thi Hai Yen & David Han-Min Wang, 2023. "Foreign Ownership and Corporate Governance on Firm Risk in ASEAN Countries: In the Context of the US-China Trade War," Springer Books, in: An Thinh Nguyen & Thu Thuy Pham & Joon Song & Yen-Ling Lin & Manh Cuong Dong (ed.), Contemporary Economic Issues in Asian Countries: Proceeding of CEIAC 2022, Volume 1, pages 497-510, Springer.
    5. Tutun Mukherjee & Som Sankar Sen, 2022. "Impact of CEO attributes on corporate reputation, financial performance, and corporate sustainable growth: evidence from India," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-50, December.
    6. Monica Singhania & Dimple Gupta, 2024. "Impact of Environmental, Social and Governance (ESG) disclosure on firm risk: A meta‐analytical review," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(4), pages 3573-3613, July.

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