Corporate governance effects on market volatility: Empirical evidence from Portuguese listed firms

Abstract

Purpose

This study examines the relationship between internal corporate governance mechanisms and firm risk-taking.

Design/methodology/approach

This research comprises a sample of 38 non-financial Portuguese firms listed on Euronext Lisbon, over the period from 2007 to 2017. To test the formulated hypotheses we use panel-corrected standard errors (PCSE) models.

Findings

Our results provide evidence that, in the Portuguese context, bigger and younger firms, with larger boards of directors and a greater number of independent directors, present higher levels of systematic risk. Our results are consistent across the robustness checks.

Originality/value

To the best of our knowledge, this is the first time that a robust incremental effect of board size on firm systematic risk is reported. This result contradicts the prevailing literature and opens up a new debate, from a financial markets viewpoint, on the benefits of larger boards of directors in terms of mitigating market volatility.

Keywords
directors; board; volatility; stock returns; independence