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Board structure and corporate risk taking in the UK financial sector

Akbar, Saeed; Kharabsheh, Buthiena; Poletti-Hughes, Jannine; Shah, Syed Zulfiqar Ali

Authors

Saeed Akbar

Buthiena Kharabsheh

Jannine Poletti-Hughes

Syed Zulfiqar Ali Shah



Abstract

© 2017 Elsevier Inc. This paper examines the relationship between board structure and corporate risk taking in the UK financial sector. We show how the board size, board independence and combining the role of CEO and chairperson in boards may affect corporate risk taking in financial firms. Our sample is based on a panel dataset of all publicly listed firms in the UK financial sector, which includes banks, insurance, real estate and financial services companies over a ten year period (2003 − 2012). After controlling for the effects of endogeneity through the application of the dynamic panel generalized method of moments estimator, the findings of this study suggest that the presence of non-executive directors and powerful CEOs in corporate boards reduces corporate risk taking practices in financial firms. The negative relationship can be explained within the agency theory context, where managers are regarded as more risk averse because of the reputational and employment risk. An increased power concentration is therefore expected to enhance the risk aversion behaviour of directors. The findings however, do not show any significant effect of board size on corporate risk taking in financial firms. As this study covers recommendations of the UK Corporate Governance Code on the role of corporate boards in managing firms' risk, the empirical evidence could be useful for corporate governance regulation and policy making.

Citation

Akbar, S., Kharabsheh, B., Poletti-Hughes, J., & Shah, S. Z. A. (2017). Board structure and corporate risk taking in the UK financial sector. International review of financial analysis, 50, 101-110. https://doi.org/10.1016/j.irfa.2017.02.001

Journal Article Type Article
Acceptance Date Feb 10, 2017
Online Publication Date Feb 11, 2017
Publication Date 2017-03
Deposit Date Sep 18, 2018
Publicly Available Date Sep 19, 2018
Journal International Review of Financial Analysis
Print ISSN 1057-5219
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 50
Pages 101-110
DOI https://doi.org/10.1016/j.irfa.2017.02.001
Keywords Corporate governance; Financial sector; Board structure; Risk; Endogeneity
Public URL https://hull-repository.worktribe.com/output/519272
Publisher URL https://www.sciencedirect.com/science/article/pii/S1057521917300194?via%3Dihub
Related Public URLs http://wrap.warwick.ac.uk/85929/

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