Board faultlines and risk-taking

Guifang Pu, Yanxiang Xie and Kai Wang

Finance Research Letters, 2023, vol. 51, issue C

Abstract: We use the 2009–2020 data of Chinese A-share non-financial listed companies to explore the impact of board faultlines on corporate risk-taking. The results show that: (1) Board faultlines reduce corporate risk-taking capacity, and mainly manifested as a decline in idiosyncratic risk-taking. (2) The impact of faultlines is primarily driven by faultlines of cognitive characteristics; the impact of faultlines of demographic characteristics is insignificant. (3) Board faultlines influence corporate risk-taking by disrupting internal board order, lowering its monitoring willingness and ability, and reducing investment efficiency. (4) The heterogeneity test results identify four firm-level factors: industry competition, performance pressure, financial risk, and equity incentives, which can activate faultlines.

Keywords: Board faultlines; Risk-taking; Social identity theory; Faultlines theory (search for similar items in EconPapers)
JEL-codes: G32 G34 M14 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322005815

DOI: 10.1016/j.frl.2022.103404

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