Approaches on Correlation between Board of Directors and Risk Management in Resilient Economies

Dan Armeanu (), Georgeta Vintila, Ştefan Cristian Gherghina and Dan Cosmin Petrache
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Ştefan Cristian Gherghina: Department of Finance, The Bucharest University of Economic Studies, 6 Piata Romana, Bucharest 010374, Romania
Dan Cosmin Petrache: Department of Agro-Food and Environmental Economics, The Bucharest University of Economic Studies, 6 Piata Romana, Bucharest 010374, Romania

Sustainability, 2017, vol. 9, issue 2, 1-15

Abstract: The recent financial crisis highlighted the need for a strong emphasis on the effectiveness of board risk oversight practices. Good corporate governance upholds effective risk management, which in turn ensures the flexibility to reply to unpredicted threats and take benefit of opportunities. Thus, risk management affords corporate resilience that engenders competitive advantage due to the capacity to circumvent, deter, defend, react, and adjust to any kind of disturbance, besides recovering quickly. Guaranteeing that the board is prepared and adequately resilient to deal with a crisis circumstance is a crucial part of good governance. By employing a data set of companies listed in Romania, this paper analyzes whether boards of directors influence risk management. We measure boards by means of size, independence, diversity, establishment of Consultative Committees, as well as CEO duality, gender, age, and tenure. Based on ten financial ratios, we develop two risk indicators regarding shareholders’ wealth and short-term risk, alongside a global business failure risk tool, by means of principal component analysis. Furthermore, the output of the multivariate regression analysis show that CEO gender, the size of the board, and Audit Committee negatively influence business failure risk.

Keywords: resilience; board of directors; risk management; principal components analysis; multivariate regression analysis (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (7)

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