Founder ownership concentration and risk disclosures: an emerging economy view

Abstract

PurposeThis paper examines the impact of founder ownership concentration (FOC) on risk disclosures. It further investigates the moderating role of risk governance in the association between FOC and risk disclosures.Design/methodology/approachWe use data from the top 200 Indian listed firms as our sample and rely on ordinary least squares (OLS) for our results. In addition, we use the propensity score matching, Heckman selection model and instrumental variable estimates for robustness checks.FindingsWe find that FOC decreases the risk disclosures. However, the effectiveness of risk management committee composition (risk governance) mitigates the negative influence of FOC on risk disclosures.Research limitations/implicationsThe paper is built on the agency theory. Based on the agency theory, the ownership concentration has two implications: first, it reduces the conflicts between managers and shareholders. Here, the managers act in favour of shareholders and therefore, brings more risk disclosers. Second, it invites conflicts between controlling and minority shareholders. The study is, therefore, interesting to see the cost and benefits of FOC on risk disclosures.Practical implicationsThe study has practical implications for the regulatory bodies to encourage risk disclosures and benefit the outsiders of the firm. It also has implications for the companies to see the benefits of risk management committee as improved risk governance.Originality/valueIt contributes to the literature of risk disclosures and risk governance in emerging economies. It is the first study to investigate the role of risk governance in mitigating the adverse effects of founder’s ownership on risk disclosures in developing economies. It also contributes to the theory of agency cost and information asymmetry.