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.
Highlights
The concept of resilience has emerged as a reaction of current iterative and growing strong economic crises [1]
Several elements were selected out of annual financial statements, which will be employed towards global business failure risk tool development, variables related to corporate governance specific features, as well as firm-level controls
Where Y is separately depicted by the retained principal components and global business failure risk tool (GBFRT), X is the vector of characteristics related to corporate governance, and Z is the vector of firm controls
Summary
The concept of resilience has emerged as a reaction of current iterative and growing strong economic crises [1]. A company should certify that there exists a balance between the management incentives and shareholder concerns in order to generate long-term value. In this sense, corporate governance is an essential device for bringing into line the beliefs corresponding to principals and agents, promoting responsibility. A resilient organization establishes transparency and sets oversight for CEOs and boards to manage enterprise risks, in order to reduce losses and to maintain shareholder value. The research of Tait and Loosemore [10] underlined that sound corporate governance is related to higher levels of organizational resilience ensuing from the reputational and financial benefits of better transparency, market value, investor attractiveness, and organizational performance. The final section of the manuscript set out the concluding remarks and provides future research avenues
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