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Corporate governance and risk in cross-listed and Canadian only companies

Atreya Chakraborty (College of Management, University of Massachusetts Boston, Boston, Massachusetts, USA)
Lucia Gao (College of Management, University of Massachusetts Boston, Boston, Massachusetts, USA)
Shahbaz Sheikh (Department of Management and Organizational Studies, The University of Western Ontario, London, Canada)

Management Decision

ISSN: 0025-1747

Article publication date: 5 October 2018

Issue publication date: 30 October 2019

984

Abstract

Purpose

The purpose of this paper is to investigate if there is a differential effect of corporate governance mechanisms on firm risk in Canadian companies cross-listed on US markets and Canadian companies not cross-listed (Canadian only companies).

Design/methodology/approach

Using a sample comprised of all Canadian companies included in the S&P/TSX Composite Index for the period 2009–2014, this study applies OLS and fixed effect regressions to investigate the effect of corporate governance mechanisms on firm risk. Interaction variables between governance mechanisms and the cross-listing status are used to examine if this effect is different for cross-listed firms.

Findings

Results indicate that the effect of board characteristics such as size, independence and proportion of female directors remains the same in both cross-listed and not cross-listed firms. CEO duality and insider equity ownership impact firm risk only in cross-listed companies, while institutional shareholdings, environmental, social and governance disclosure and family control affect firm risk in Canadian only firms. Overall, the empirical results indicate that some governance mechanisms impact firm risk only in firms that cross-list, while others are well-suited for Canadian only firms.

Practical implications

This study suggests that some of the differences between Canadian companies that cross-list and the Canadian companies that do not cross-list in US stock markets may change the impact of governance mechanisms on firm risk. Therefore, these findings have important implications for the design of governance mechanisms in Canadian firms. Since some of these differences are common to other economies, the conclusions can be extended to companies in other countries with similar governance structures.

Originality/value

Although previous studies have investigated the effect of governance mechanism on firm risk, this is the first paper that studies the differential effect for companies that cross-list in US markets. Specifically, differences in the ownership structure, firm control and in the regulatory and institutional environment, may explain this differential effect. Unlike most of the previous studies that focus on the effect of individual governance mechanisms, this study uses several mechanisms and their interactions at the same time.

Keywords

Citation

Chakraborty, A., Gao, L. and Sheikh, S. (2019), "Corporate governance and risk in cross-listed and Canadian only companies", Management Decision, Vol. 57 No. 10, pp. 2740-2757. https://doi.org/10.1108/MD-10-2017-1052

Publisher

:

Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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