Risk Committee, Corporate Risk-Taking, and Firm Value

Abstract

Purpose: We empirically examine the impact of the stand-alone risk committee on corporate risk-taking and firm value.

Design/methodology/approach: We argue that the existence of a stand-alone risk committee enhances the quality of corporate governance, which reduces corporate risk-taking and strengthens the firm value that might improve investor protection.

Findings: We find several measures of risk-taking decline significantly for firms that have a stand-alone risk committee compared with firms that have a joint audit and risk committee. We also find that the presence of a stand-alone risk committee is positively associated with firm value.

Practical implications: The evidence is consistent with the proposition that firms with a stand-alone risk committee can effectively evaluate potential risks and implement a proper risk management system.

Originality: This is the first paper that investigates the association between the existence of a stand-alone risk committee and firm risk-taking in a multi-industry setting. Also, our research extends the association between a stand-alone risk committee and firm value.

Keywords: Stand-Alone Risk Committee; Corporate Risk-Taking; Firm Value; Australia

JEL Classification: G30, G32, G34