Boards attributes that increase firm risk – evidence from the UK

Abstract

Purpose

The purpose of this paper is to identify the board attributes that significantly increase firm risk. The study aims to find whether board size, percentage of non-executive directors, women on the board, a powerful chief executive officer, equity ownership amongst executive board directors and institutional investor ownership are associated with firm risk. This is the first study that examines which board attributes increase firm risk using a UK-based sample.

Design/methodology/approach

This empirical study collected secondary data from Bloomberg and Morningstar databases. The data sample is an unbalanced panel of 260 companies’ secondary data on FTSE 350 index in the UK, from 2005 to 2010. The data were statistically analysed using STATA.

Findings

The study establishes the board attributes that were significantly related to firm risk. The results show that a board which can increase firm risk is one that is small in size, has high equity ownership amongst executive board directors and has high institutional investor ownership.

Research limitations/implications

The governance culture and regulatory system in the UK is different from other countries. As the data are a UK-based sample, the results can lack generalisability.

Practical implications

The results are useful for investors who invest in large firms, to have the knowledge about the board attributes that can increase firm risk. Regulators can also use the results to strengthen regulatory guidelines.

Originality/value

This study fills the gap in knowledge in UK governance literature on the board attributes that can increase firm risk.

Citation

Mathew, S., Ibrahim, S. and Archbold, S. (2016), "Boards attributes that increase firm risk – evidence from the UK", Corporate Governance, Vol. 16 No. 2, pp. 233-258. https://doi.org/10.1108/CG-09-2015-0122