Abstract
This paper empirically evidences the role played by board characteristics (skills, diversity, structure, independence) in supporting risk management disclosure and shaping the financial performance of European companies operating in the financial services sector. We exploit data selected from Thomson Reuters Eikon database in 2020 for the last fiscal year 2019 (FY0) on a longitudinal sample of 144 companies with the head offices in Europe (25 countries). Following an original empirical approach based on two modern financial econometric techniques, namely structural equation modelling (SEM) and network analysis through Gaussian graphical models (GGMs), the research endeavor outlines the decisive importance of an optimal board size, enhanced management skills, upward gender diversity (encompassed by women participation on board management), and structure (mainly a two-tier type, one management board, and a distinctive supervisory board) as fundamentals of risk management strategies, leading to improved financial achievements and a higher profitability for the analyzed companies.
Highlights
IntroductionThe relationship between the board of directors’ key features affecting governance, risk management disclosure, and financial variables/firm profitability represents a topical research subject largely approached in the literature
Based on the underpinnings of the relevant literature, this paper aims to explore the relationship between board characteristics, risk management disclosure, and the financial performance of companies operating in the financial services sector in 25 European countries
Positive synergies with return on assets (ROA) related to the size of the board (BS), departures of management (MD), the skills of board and its background (BBS), the type of structure of board (BST), and the existence of a (CG) board and committee (CGBC), on the one hand, and negative ones in regards to the connections with the independence of compensation committee (CCI) and CSR sustainability committee (CSR_SC);
Summary
The relationship between the board of directors’ key features affecting governance, risk management disclosure, and financial variables/firm profitability represents a topical research subject largely approached in the literature. These credentials are at the core of this research, being placed in the open conversation and ongoing debate on the importance of board characteristics-like board independence, size, background and skills, structure, and diversity—associated with the corporate governance (CG) and sustainable development activities, in shaping the financial performance of companies, those operating in the financial services sector.
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