Abstract
Based on data of all listed insurance companies in Jordan over the period of 2008-2018, the study investigates the effect of chairman of the board of directors (chair) and chief executive officer (CEO) age variation on risk-taking behavior via different chair-CEO age variation proxies. Risk-taking behavior is measured by total risk, a proxy set up on the market’s risk perception. Thus, the study finds evidence that the chair-CEO age variation tends to decrease risk-taking practice in Jordan’s insurance companies, only if a generation gap exists. It doesn’t matter whether the chair or CEO is older. These results are consistent with Goergen, Limbach, and Scholz (2015) and Zhou, Kara, and Molyneux (2019). Different robustness tests (CEO-firm fixed effect, random effect, and dynamic panel estimation) confirm results. Overall, this study contributes to corporate governance literature; thus, enhancing the internal corporate governance mechanism is essential. Finally, it has a practical implication for stakeholders, policymakers, and researchers.
Highlights
Stockholders elect the board of directors (BODs) to lead the corporation on behalf of them, in which each BODs has a chair who guides the supervisory board (Goergen, Limbach, & Scholz, 2015)
This study aims to contribute to corporate governance literature connected to board diversity and its significance as a potential driver of risk-taking behavior, given the importance of the Amman Stock Exchange (ASE), in which foreign investment percentage in one of the largest in worldwide security exchanges (OECD, 2006)
The average age difference is 12.5 years. They were indicating that in most Jordanian insurance companies, the chair is older than the chief executive officer (CEO)
Summary
Stockholders elect the board of directors (BODs) to lead the corporation on behalf of them, in which each BODs has a chair who guides the supervisory board (Goergen, Limbach, & Scholz, 2015). The BODs are considered an essential part of the internal corporate governance mechanism (Fama & Jensen, 1983). The tremendous global financial crisis of 2007-2009 has shed more light on the unique role of effective corporate governance in limiting risk-taking behavior (OECD, 2010). One of the BODs’ key roles is to hire a chief executive officer (CEO) with a leading ability (Bhagat, Bolton, & Subramanian, 2010). It is essential for the chair and the CEO to communicate and interact with each other. The chair-CEO relationship can be affected by demographic variables such as age, education level, working experience, and gender. The form of optimal chair-CEO relationship is still not clear
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