The Governance of Risk Management: The Importance of Directors’ Independence and Financial Knowledge

79 Pages Posted: 5 Jun 2019

See all articles by Georges Dionne

Georges Dionne

HEC Montreal - Department of Finance

Olfa Maalaoui Chun

Korea Advanced Institute of Science and Technology (KAIST) - Graduate School of Finance

Thouraya Triki

HEC Montreal

Date Written: January 4, 2018

Abstract

This paper tests the effects of the independence and financial knowledge of directors on risk management and firm value in the gold mining industry. Our original hand-collected database on directors’ financial education, accounting background, and financial experience allows us to test the effect of each dimension of financial knowledge on risk management activities. We show that directors’ financial knowledge increases firm value through the risk management channel. This effect is strengthened by the independence of the directors on the board and on the audit committee. Extending the dimension of education, we show that, following unexpected shocks to gold prices, educated hedgers are more effective than average hedgers in the industry. As a policy implication, our results suggest adding the experience and education dimensions to the 2002 Sarbanes–Oxley Act and New York Stock Exchange requirements for financial literacy.

Keywords: risk management governance, financial knowledge, financial and accounting education of director, financial experience of director, independence of director, policy implications

JEL Classification: D83, G18, G30, G32, G34, G38

Suggested Citation

Dionne, Georges and Maalaoui Chun, Olfa and Triki, Thouraya, The Governance of Risk Management: The Importance of Directors’ Independence and Financial Knowledge (January 4, 2018). Available at SSRN: https://ssrn.com/abstract=3389540 or http://dx.doi.org/10.2139/ssrn.3389540

Georges Dionne (Contact Author)

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada
514-340-6596 (Phone)
514-340-5019 (Fax)

HOME PAGE: http://www.hec.ca/gestiondesrisques/

Olfa Maalaoui Chun

Korea Advanced Institute of Science and Technology (KAIST) - Graduate School of Finance ( email )

207-43 Cheongryangri-2dong 130-722
Seoul
Korea

Thouraya Triki

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

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