Corporate governance and firm risks: Evidence from UK non-financial firms

JU, YUNHAN (2019) Corporate governance and firm risks: Evidence from UK non-financial firms. [Dissertation (University of Nottingham only)]

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Firms nowadays are characterized by bearing risks and coping with uncertainty during its operation and involving in higher risky activities generally can be compensated by more attractive rewards such as higher profits or strong cash flows. However, the risk is a mix of dangers and opportunities. One fatal cause of catastrophes such as global financial crisis is the failure of risk management, which is evidenced by the excessive risk-taking behaviour of executives and senior management. Therefore, it is of necessity to explore the functions of corporate governance and study the effect of corporate governance mechanism to firm risks aimed at critically managing risks, enhancing firm values and protect interests of shareholders.

By conducting the empirical study based on the total sample of 159 UK non-financial firms and the sub-sample of 56 manufacturing firms in the UK from 2010 to 2018, we find that corporate governance has impact on firm risks and such impact is more significant on firm total risks than their tail risks. To be specific, the board size tends to be significantly associated with firm total risks. However, different directions of such significant relationship are explored from the total sample and sub-sample. Additionally, ownership concentration shows a significant and positive relation with the volatility of stock daily returns in total sample. Besides, for manufacturing firms, their independent directors can be regarded as an effective control to significantly lower firm total risks. Considering tail risks of firms, we do not find evidence to support the association between corporate governance and risks in total sample and only observe a significant positive relation between numbers of directors and expected shortfalls. The study not only contributes to the prior literature by filling research gaps but also offers practical implications for companies, investors and regulators.

Item Type: Dissertation (University of Nottingham only)
Depositing User: JU, Yunhan
Date Deposited: 30 Nov 2022 16:18
Last Modified: 30 Nov 2022 16:18

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