Mathew, Sudha (2013) The influence of board attributes on firm risk in large publicly held UK firms. (PhD thesis), Kingston University, .
Abstract
This empirical study explores the effect of individual board attributes and combination of board attributes on managerial risk-taking in UK FTSE 350 firms. The recent financial crisis has focused the attention of regulators and all stakeholders of the firm on avoiding high risk-taking by top management. These concerns have been addressed in this study which examines the effect of board composition (board size, proportion of non-executive directors, and gender diversity), board leadership structure (presence of a powerful CEO and board executive ownership), board characteristics (age and tenure of board members) and board processes (board meeting attendance and frequency of audit committee meetings) on firm risk. This study aims to fill the gap in UK governance literature on how individual board attributes and a combination of board attributes (represented by the board composition index, the board leadership index, the board characteristics index and the board process index) associate with risk-taking in large UK corporations. Archival data is used in this study from a panel sample of 268 listed firms on the FTSE 350, over the period 2005 to 2010. On analysing the data, this study finds support for the hypothesis that a large board size decreases firm risk. The board composition index is found to be significantly negatively related to firm risk. A powerful CEO and executive director’s equity ownership is positively related to firm risk, and as expected the board leadership index is found to be significantly and positively associated with firm risk. Older board members with longer tenures reduce firm risk; and the board characteristics index is significantly and negatively related to firm risk. Better board meeting attendance and more frequent audit committee meetings reduces firm risk and as expected the board process index reduces firm risk. An overall board index constructed by combining the indices discussed above is found to be significantly associated with firm risk. This board index can be used as a board governance index to evaluate the effectiveness of the board in relation to firm risk. These findings can inform firms, investors and regulators that board attributes significantly affect firm risk and can be used as risk control mechanisms.
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