Organizational non-compliance with principles-based governance provisions and corporate risk-taking |
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| Institution: | 1. University of Liverpool Management School, University of Liverpool, Chatham Street, Liverpool L69 7ZH, United Kingdom;2. Bradford University School of Management Emm Ln, Bradford BD9 4J, United Kingdom;3. The Open University Business School, The Open University, Milton Keynes MK7 6AA, UK;1. Faculty of Business, The University of Jordan/Aqaba. Aqaba, Jordan. P.O. Box 2595, Aqaba 77111, Jordan;2. Hull University Business School, University of Hull, HU6 7RX Hull, UK;3. Trinity Business School, The University of Dublin, Dublin, Ireland.;4. Trinity Business School, Trinity College, Dublin 2, Ireland |
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| Abstract: | This paper examines how risk-taking is affected by non-compliance with a ‘comply or explain’ based system of corporate governance. Using System Generalized Methods of Moments (GMM) estimates to control for various types of endogeneity, the results of this study show that non-compliance with the UK Corporate Governance Code is positively associated with total, systematic, and idiosyncratic risk. However, profitability moderates the impact of non-compliance on firms' risk-taking. The findings of this study further reveal that the impact of non-compliance with various provisions of the UK Corporate Governance Code is not uniform. That is, non-compliance with board independence provisions is associated with higher risk-taking. However, non-compliance with committees' chair independence is associated with lower risk-taking. These findings have implications for investors, policy makers, and corporations regarding the usefulness of compliance with a prescribed code of corporate governance. |
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