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The role of the board and the audit committee in corporate risk management

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  • Tai, Vivian W.
  • Lai, Yi-Hsun
  • Yang, Tung-Hsiao

Abstract

This paper examines the impact of corporate governance on corporate risk-management activities in S&P 500 firms over the period 2004–2010 by measuring the characteristics of the board directors and audit committee. Our results show that the board of directors, especially the audit committee, plays an important role in the firm’s hedging decisions, including whether to hedge and to what extent. Such evidence is even stronger in high-leveraged firms with large risk-shifting incentives. These results are robust to the consideration of endogenous concerns, a board corporate governance index, and industrial effects. Our study contributes to the literature by showing the influential role of the audit committee on corporate risk management.

Suggested Citation

  • Tai, Vivian W. & Lai, Yi-Hsun & Yang, Tung-Hsiao, 2020. "The role of the board and the audit committee in corporate risk management," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:ecofin:v:54:y:2020:i:c:s1062940818303930
    DOI: 10.1016/j.najef.2018.11.008
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    Cited by:

    1. Marius Eugen Rogoz & Dragos Andrei Stoica & George-Aurelian Tudor, 2022. "Corporate Governance In The Setting Up And Operation The Audit Committees Of Bse Listed Companies," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 2, pages 18-31, April.
    2. Cucinelli, Doriana & Soana, Maria Gaia, 2023. "Systemic risk in non financial companies: Does governance matter?," International Review of Financial Analysis, Elsevier, vol. 87(C).

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    More about this item

    Keywords

    Hedging; Risk-shifting; Derivatives; Risk management; Board; Corporate governance;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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