The corporate governance–risk-taking nexus: evidence from insurance companies

Abstract

PurposeThis study aims to examine the impact of internal corporate governance mechanisms on insurance companies’ risk-taking in the UK context.Design/methodology/approachThe study uses a panel data of all listed insurance companies on FTSE 350 over the 2005-2014 period. Multivariate regression techniques are used to estimate the effect of internal corporate governance mechanisms on insurance companies’ risk-taking.FindingsThe results show that the board size and board meetings are significantly and negatively related to risk-taking. In contrast, the results show that board independence and audit committee size are statistically insignificant but negatively related to risk-taking. The findings are robust to alternative measures and endogeneities.Research limitations/implicationsThe findings have important implications for investors, managers, regulators of financial institutions and effectiveness of corporate governance reforms that have been pursued. Investors may further rely on internal corporate governance attributes to form expectations about risk-taking behaviour. Insurance companies need strong governance, as well as effective accounting and financial reporting standards, to enable proper insights into the company’s financial position.Originality/valueThis study contributes to the corporate governance literature and creates significant evidence regarding the role of corporate governance in constraining risk-taking behaviour in an industry with significantly complex context.