Voluntary risk management committee formation: Determinants and short-term outcomes

Hines, Christopher S.; Peters, Gary F.

doi:10.1016/j.jaccpubpol.2015.02.001

Cited by 52 publications

(50 citation statements)

References 33 publications

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“…Furthermore, the relationship between risk and the likelihood of financial distress was not moderated by the existence of a RMC or separate RMC after controlling for the self-selection bias. This result may suggest that the mere the existence of a RMC or separate RMC does not decrease firms' likelihood of financial distress, which confirms the view that RMC establishment may serve as a symbolic practice or as a signal to the market (Hines and Peters, 2015;Rodrigue, Magnan and Cho, 2013 Human capital theory indicates that the crucial aspects of human capital and resource dependence theory highlight the importance of skills and experience of individuals. Although the literature regarding RMC human capital is sparse, a number of studies have highlighted that human capital in the audit committee is positively associated with performance outcomes (Chan and Li, 2008;DeFond, Hann, and Hu, 2005;Tao and Hutchinson, 2013).…”

Section: H2(b): There Is a Negative Relationship Between Risk And Thesupporting

confidence: 54%

“…In the first stage, a probit regression was conducted. The dependent variable was a RMC, and similar to previous research, the test included board size, CEO duality, and board independence, as the previous studies have indicated that these three variables influence firms' establishment of a RMC and separate RMC (Hines and Peters, 2015;Ling, Zain and Jaffar, 2014;Subramaniam, McManus and Zhang, 2009). Using the parameters from this model, the inverse Mills ratio was computed for all sample firms (Heckman, 1978;Johnston and DiNardo 1997).…”

Section: Heckman (1978) Test -Self-selection Bias (Endogenous Issues)mentioning

confidence: 98%

“…In addition, Hines and Peters (2015) investigated the association between RMC existence and firm performance. They found that in the US, RMC formation is not significantly associated with profitability and short-term risk outcomes, such as the level of loan charge-offs and the presence of a Chief Risk Officer.…”

Section: Rmc Risk and Firm Performancementioning

confidence: 99%

“…A number of papers have examined the determinants of a RMC and suggested that leverage, board size, and board independence determine the formation of a RMC and separate RMC (Hines and Peters, 2015;Ling, Zain and Jaffar, 2014;Subramaniam, McManus and Zhang, 2009). Hines and Peters (2015) investigated the impact of RMC existence on firms.…”

Section: Non-linear Relationship-risk and Firm Performancementioning

confidence: 99%

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Does Firms' Risk Management Human Capital Reduce the Likelihood of Financial Distress?

Jia¹

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iii AbstractIn light of the corporate collapses and global financial crisis, risk management has been highlighted as an ever increasing important element of corporate governance.As risk management committees (RMC) bear the fundamental responsibility of risk management, RMCs' human capital performs a crucial role in risk management governance and warrants further investigation.The purpose of this study is to investigate the association between firms' RMC human capital and firms' management of risk, in terms of firm performance and the likelihood of financial distress. This study is motivated by the paucity of research on risk management governance and the Australian Security Exchange Corporate With respect to the association between RMCs, separate RMCs existence, and firms' management of risk in terms of firm performance and the likelihood of financial distress, the results revealed that the number of firms with a separate RMC remained stable over time, whereas there was an increasing trend of combined RMC establishment, and a decrease in the number of firms without a RMC. The regression results reveal that the existence of a RMC and a separate RMC were not significantly related to firm performance and the likelihood of financial distress. However, the findings show that the existence of a separate RMC moderated the relationship between firm risk and a firm's accounting performance. In terms of RMC human capital, the overall RMC human capital score was positively related to firm performance and market measurement of the likelihood of financial distress. With Does firms' risk management human capital reduce the likelihood of financial distress? v respect to individual RMC human capital characteristics, the total amount of experience (as a type of general human capital) was positively related to accounting performance, while RMC members' board tenure (as a type of firm-specific human capital) was negatively related to market performance.The findings make several important contributions. Firstly, this study contributes to the literature by providing empirical evidence about human capital theory from a risk management perspective, and draws on research to determine whether human capital is associated with firm performance and research that determines the association between risk management and firm performance. Secondly, this study informs policy setters about the current risk management practice in Australia, and provides implications for regulating risk management practices. Overall, the findings of this study highlight the importance of RMCs' human capital.

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Section: H2(b): There Is a Negative Relationship Between Risk And Thesupporting

confidence: 54%

Section: Heckman (1978) Test -Self-selection Bias (Endogenous Issues)mentioning

confidence: 98%

Section: Rmc Risk and Firm Performancementioning

confidence: 99%

Section: Non-linear Relationship-risk and Firm Performancementioning

confidence: 99%

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Does Firms' Risk Management Human Capital Reduce the Likelihood of Financial Distress?

Jia¹

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“…Thus far, there is limited evidence if any that the existence of a risk committee drives performance (Aebi et al., ; Hines & Peters, ). In fact, the latter authors posit that risk management committees may represent a symbolic governance practice to enhance the firm's reputational legitimacy (Hines & Peters, , p. 288).…”

Section: Literature Reviewmentioning

confidence: 99%

Risk governance: Examining its impact upon bank performance and risk‐taking

Gontarek

Belghitar

2018

Financial Market

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As policy‐makers in the United States contemplate a relaxation of financial regulation, our study contributes to this dialogue by testing the veracity of heightened standards of risk governance activities for US bank holding companies (BHCs). Our study examines evidence relating to the adoption of these standards by BHCs following regulatory intervention. We find that board‐level risk appetite practices have a profound association upon BHC performance and tail risk. Our estimates show that BHCs which adopt risk appetite practices exhibit a significant improvement in headline performance and reduced tail risk measures. Our research is relevant to academics by identifying the significance of this risk governance practice which has been introduced by global regulators. For practitioners (including board members, risk managers, policy‐makers and regulators), our study validates the efficacy of risk appetite frameworks as the future shape of financial regulation is being actively debated in the US.

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CEO chairman controversy: evidence from the post financial crisis period

Gontarek

Belghitar

2020

Rev Quant Finan Acc

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Regulators generally discourage bank CEOs also holding the role of board Chairman, as this governance structure can hinder independent decision-making and effective risk oversight. This study examines the issue of CEO Duality, identifying a positive relation to greater risk-taking across a battery of sensitivity tests. In further analysis, the study controls for differences in supervisory monitoring levels to examine its impact. Banks led by CEO Chairmen which are subject to lower levels of supervision continue to report a robust association to risk-taking, as before. However, this association dissipates for banks which are subject to heightened supervisory monitoring. These findings indicate that agency costs related to Duality may be moderated by greater regulation. This paper weighs-in on the controversy relating to a single contentious governance structure (i.e., CEO Duality), thus informing boards, regulators and researchers of the need to consider the overall interplay of monitoring mechanisms.

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Voluntary risk management committee formation: Determinants and short-term outcomes

Cited by 52 publications

References 33 publications

Does Firms' Risk Management Human Capital Reduce the Likelihood of Financial Distress?

Does Firms' Risk Management Human Capital Reduce the Likelihood of Financial Distress?

Risk governance: Examining its impact upon bank performance and risk‐taking

CEO chairman controversy: evidence from the post financial crisis period

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