Revisiting corporate governance and financial risk-taking

Abstract

Corporate governance attributes have varying effects on risk taking when variables are examined separately. We study the effects of a large range of corporate governance attributes on risk taking using a comprehensive US sample. Our findings confirm that although there are certain characteristics that drive this positive effect such as compensation structure, there are those which have the opposite effect such as board-level attributes. Our paper contributes to the broader literature on the relationship between corporate governance and risk in financial institutions, which are often overlooked in traditional studies. We shed light on the importance of studying corporate governance at a granular level rather than using a single index. The findings offer insights to regulators in determining suitable corporate governance frameworks to ensure the protection of investors rights in financial institutions.