TY - JOUR
T1 - Voluntary adoption of board risk committees and financial constraints risk
AU - Malik, Muhammad Farhan
AU - Nowland, John
AU - Buckby, Sherrena
PY - 2021/1
Y1 - 2021/1
N2 - To improve risk management processes, policymakers around the world have encouraged firms to invest in improving risk oversight and governance practices, such as adoption of a board risk committee (BRC). This paper examines whether adoption of a BRC improves a firm's access to capital by reducing financial constraints risk. Using a sample of 28,265 observations from listed firms in the U.S. from 2005 to 2017, we find voluntary adoption of a BRC significantly reduces financial constraints risk. This finding is robust to alternative proxies of financial constraints risk, accounting for sample selection bias and controlling for unobserved firm-level heterogeneity. We also find that BRC characteristics including size, financial experts and female directors are negatively related to financial constraints risk. In addition, we document significant indirect effects of BRCs on financial constraints risk through reducing information asymmetry and agency costs. In summary, the findings of this paper indicate that voluntary adoption of a BRC is important for listed firms without an effective risk governance structure at the board level.
AB - To improve risk management processes, policymakers around the world have encouraged firms to invest in improving risk oversight and governance practices, such as adoption of a board risk committee (BRC). This paper examines whether adoption of a BRC improves a firm's access to capital by reducing financial constraints risk. Using a sample of 28,265 observations from listed firms in the U.S. from 2005 to 2017, we find voluntary adoption of a BRC significantly reduces financial constraints risk. This finding is robust to alternative proxies of financial constraints risk, accounting for sample selection bias and controlling for unobserved firm-level heterogeneity. We also find that BRC characteristics including size, financial experts and female directors are negatively related to financial constraints risk. In addition, we document significant indirect effects of BRCs on financial constraints risk through reducing information asymmetry and agency costs. In summary, the findings of this paper indicate that voluntary adoption of a BRC is important for listed firms without an effective risk governance structure at the board level.
KW - Board composition
KW - Board risk committee
KW - Financial constraints
KW - Risk governance
UR - http://www.scopus.com/inward/record.url?scp=85095418326&partnerID=8YFLogxK
U2 - 10.1016/j.irfa.2020.101611
DO - 10.1016/j.irfa.2020.101611
M3 - Article
AN - SCOPUS:85095418326
VL - 73
JO - International Review of Financial Analysis
JF - International Review of Financial Analysis
SN - 1057-5219
M1 - 101611
ER -