Governance and Shareholder Response to Chief Risk Officer Appointments

Manu Gupta, Puneet Prakash and Nanda Rangan
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Manu Gupta: 301, W. Main Street, School of Business, Virginia Commonwealth University, Snead Hall, Richmond, VA 23284, U.S. E-mails: mgupta2@vcu.edu; pprakash@vcu.edu; nkrangan@vcu.edu
Puneet Prakash: 301, W. Main Street, School of Business, Virginia Commonwealth University, Snead Hall, Richmond, VA 23284, U.S. E-mails: mgupta2@vcu.edu; pprakash@vcu.edu; nkrangan@vcu.edu
Nanda Rangan: 301, W. Main Street, School of Business, Virginia Commonwealth University, Snead Hall, Richmond, VA 23284, U.S. E-mails: mgupta2@vcu.edu; pprakash@vcu.edu; nkrangan@vcu.edu

The Geneva Papers on Risk and Insurance - Issues and Practice, 2012, vol. 37, issue 1, 108-124

Abstract: This study examines the recent, significant growth in the appointments of Chief Risk Officers (CROs), the role of a CRO, and whether such appointments benefit shareholders. We find that the market is more likely to react positively to a CRO appointment for a firm with weak corporate governance. In particular, the lower the proportion of outside directors the greater is the likelihood of a positive market reaction to CRO appointments, suggesting that CRO appointments are associated with better future governance by firms’ shareholders. Finally, firms with higher tax and product risk also experience increases in stock prices when they appoint CROs.

Date: 2012
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