Enterprise Risk Management And Financial Stability Essay

18730 WordsDec 20, 201175 Pages
Enterprise Risk Management and Financial Stability in Dual-Board Corporate Governance System Zhenyu Wu*, University of Saskatchewan, Canada Yuanshun Li, Ryerson Unviersity, Canada Shujun Ding, York University, Canada Chunxin Jia, Peking University, China This Version: October 2008 *Corresponding author. Department of Finance and Management Science, Edwards School of Business, University of Saskatchewan, 25 Campus Drive, Saskatoon, SK, Canada S7V 1K7. Tel: (306) 966-7779. Email: wu@edwards.usask.ca. Enterprise Risk Management and Financial Stability in Dual-Board Corporate Governance System Abstract This study investigates the e¤ectiveness of the dual-board corporate governance mechanism on enterprise risk management and …nancial stability in emerging markets. Taking into account both market risk and total risk, we …nd activities of both boards, board of directors and the supervisory board, in these companies a¤ect corporate risk-taking behaviors signi…cantly, but shed light on di¤erent aspects. These …ndings are of interest and counter-intuitive since prior research concludes ine¤ectiveness of the dual-board system in China. More detailed issues, such as the endogeneity of board activities and characteristics, reciprocal causality between board behaviors and risk-taking issues, e¤ects of political/governmental policies and ownership structure of controlling shareholders on board behaviors, asymmetrical monitoring effects of two boards on companies with various levels of …nancial risk, and non-linear e¤ects of meeting frequencies of two boards, are addressed to help better understand the corporate governance-enterprise risk management relationship. Key words: Corporate governance, enterprise risk management, corporate risk-taking, dual-board system JEL Classi…cation: G34, G38 1 1 Introduction Late November 2004, a loss of US$554 million of

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