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The influence of corporate governance on changes in risk following the global financial crisis: evidence from the Portuguese stock market

Tiago Miguel Sá (), Elisabete Duarte Neves () and Cristina Gonçalves Góis ()
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Tiago Miguel Sá: Polytechnic Institute of Coimbra
Elisabete Duarte Neves: Polytechnic Institute of Coimbra
Cristina Gonçalves Góis: Polytechnic Institute of Coimbra

Journal of Management & Governance, 2017, vol. 21, issue 4, 841-878

Abstract: Abstract This paper examines the influence of corporate governance characteristics on changes in total, market and idiosyncratic risk in the Portuguese capital market following the collapse of Lehman Brothers. We aim to address corporate practices, while determining if corporate governance characteristics can help predict future variations of the risk associated with a certain security and, in this sense, if these characteristics may be used to help monitor or forecast risk of an existing portfolio of securities over time. We find positive and significant changes in total and idiosyncratic risk for non-financial firms listed on Euronext Lisbon, consistent with increases in investor uncertainty during the crisis period. Our results suggest that changes in risk measures over a shorter-term and a longer-term period vary with governance characteristics. The capital market rewarded companies with a greater proportion of non-executive directors and directors that exercise (on average) management roles in more companies or institutions. On the other hand, the capital market punished companies with a greater proportion of independent directors and greater ownership concentration.

Keywords: Financial crisis; Risk; Corporate governance (search for similar items in EconPapers)
Date: 2017
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