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Corporate governance and risk management: The role of risk management and compensation committees

Ngoc Bich Tao and Marion Hutchinson

Journal of Contemporary Accounting and Economics, 2013, vol. 9, issue 1, 83-99

Abstract: This paper examines the role of compensation and risk committees in managing and monitoring the risk behaviour of Australian financial firms in the period leading up to the global financial crisis (2006–2008). This empirical study of 711 observations of financial sector firms demonstrates how the coordination of risk management and compensation committees reduces information asymmetry. The study shows that the composition of the risk and compensation committees is positively associated with risk, which, in turn, is associated with firm performance. More importantly, information asymmetry is reduced when a director is a member of both the risk and compensation committees which moderate the negative association between risk and firm performance for firms with high risk.

Keywords: Corporate governance; Risk management; Compensation committee; Risk management committee; Firm performance (search for similar items in EconPapers)
Date: 2013
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Journal of Contemporary Accounting and Economics is currently edited by Agnes C.S. Cheng, P. Clarkson, F.A. Gul, Zoltan Matolcsy, Dan Simunic and Ben Srinidhi

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