Purpose: This study explores the relationship between the board governance structure and firm risk. Specifically, we develop a 'Governance index' based on four different aspects of the board: 1. Board composition, 2. Board leadership structure, 3. Board member characteristics and 4. Board processes, and examine how the overall index relates to firm risk. Design:The study is conducted using a sample of 268 UK firms from the FTSE 350 index, over the period 2005 to 2010. An index is constructed to capture the overall governance structure of the firm. Regressions of the index on three risk measures are examined. Findings:We find that the governance index that aggregates the four sets of board attributes is significantly negatively related to firm risk. Robustness tests confirm this result.Research Implications: A large number of studies have explored the relationship between the attributes of corporate boards and firm performance, with mixed results. A much smaller number of studies have looked at board attributes and firm risk, but these have either focused on financial sector firms alone, or have included only a single or a limited number of attributes. This study, utilizing a broad agency framework, seeks to extend the work on firm risk and board attributes, by both expanding industry sectors examined and employing a comprehensive set of board attributes. Originality:The findings have policy and practical implications for investors, regulators, and chairmen of boards of governors to the extent that they inform these constituencies about the set of board attributes that are associated with firm risk. This study is the first to utilize a comprehensive measure of governance and relate it to firm risk.

Boards attributes that increase firm risk -evidence from the UK AbstractPurpose -The aim of the paper is to identify the board attributes that significantly increase firm risk. The study aims to find if board size, percentage of non-executive directors, women on the board, a powerful CEO, 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. 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. Since the data is 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.Keywords: board composition, UK corporate governance, firm risk, decision making Introduction:

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PurposePrior research suggests that firms manipulate earnings through accruals to achieve certain reporting objectives. Recently, especially following the Sarbanes‐Oxley (SarbOx) Act, researchers have turned their attention to real account manipulation as an alternative. However, there is no evidence on whether the likelihood of being detected by outsiders is different for firms using these alternative manipulation methods. The purpose of this paper is to examine this research question in the context of seasoned equity offerings (SEOs).Design/methodology/approachFirst, the authors compare SEOs to a matched sample of non‐SEOs to document income‐increasing manipulation. Next, they identify SEOs that prompt lawsuits and compare sued and non‐sued firms to determine whether using a particular method of manipulation is more likely to be detected and associated with litigation.FindingsThe authors find evidence of income‐increasing accrual and real manipulation for SEOs in the year prior to the offering in the pre‐SarbOx period, and find some evidence of a shift to real account manipulation post‐SarbOx. The authors examine the subsequent litigation pattern of these SEOs, and find that firms that are subsequently sued have a higher prevalence of income‐increasing discretionary accruals when the lawsuit allegations involve accounting issues. Following SarbOx, investors are paying less attention to accrual manipulation through accounts receivable and there is more scrutiny of real account manipulation.Originality/valueThe implication in this paper is that firms that engage in income‐increasing earnings management are more likely to be sued when they engage in accrual manipulation while other forms of manipulation may be less understood. This finding is important to investors and regulators.

Research Question/Issue In this study, we explore the relationship between the use of nonfinancial performance measures in Chief Executive Officer (CEO) bonus plans and CEO power, moderated by compensation committee monitoring. Furthermore, we investigate whether the inclusion of nonfinancial performance measures is associated with higher CEO bonus pay sensitivity to shareholder returns. Research Findings/Insights Using a sample of FTSE 350 firms during the period 2007–2013, we find that CEO power is significantly negatively related to the propensity of using nonfinancial performance measures. This negative relationship, however, is moderated by higher levels of compensation committee monitoring. We also find that firms combining nonfinancial and financial performance measures in CEO bonus plans tend to have stronger CEO bonus pay sensitivity to shareholder returns than firms using financial measures alone. Thus, our results suggest that boards of directors adopting nonfinancial performance measures are able to better align CEO incentives with shareholder interests. We find similar results when using the weight of nonfinancial performance measures in the bonus plan in our analyses. Theoretical/Academic Implications This study empirically supports the managerial power theory whereby powerful CEOs influence the choice of performance measures in their bonus plans. However, effective compensation committees are found to attenuate the influence of powerful CEOs and to better align their interests with those of shareholders. Our result of stronger bonus pay sensitivity to shareholder returns for firms combining nonfinancial with financial performance measures implies that the informativeness of these measures enhances the firm's ability to tie CEO bonus compensation to shareholder wealth. Practitioner/Policy Implications This study offers insights to members of boards of directors, especially compensation committee members, who are interested in improving the design of executive incentive contracts to better align managerial incentives to shareholder interests. Furthermore, the findings inform regulators about the importance of alternative performance measures in pay‐performance sensitivity and may warrant increased firm disclosure of the details of the pay structure.