A Study on the Relationship between Board Structure and Financial Risk in Chinese Manufacturing Companies
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The study of financial risk is a critical issue in financial accounting because the existence of financial risk threatens the life of the enterprise. Improper handling of financial risks by companies puts business at risk. A company's financial risk is caused by several internal or external factors such as unreasonable corporate governance structure. As the core of corporate governance, the board of directors supervises the executives of the company on behalf of the investor. So, the company is inevitably responsible for financial risk. Therefore, this study studied the relationship between board structure and financial risk. This study theoretically and empirically analyzes the relationship between board structure and corporate financial risk using four aspects which are board size, board position setting, board meeting frequency, and board share ratio. This study selected A-share manufacturing companies in Shanghai and Shenzhen stock markets in China during 2011-2018. In addition, descriptive statistics, correlation coefficient analysis, and linear regression analysis were used to study the impact of the board structure on corporate financial risks. This study found that the board structure of manufacturing companies had a greater impact on financial risk than other factors. board size and the frequency of board meetings also showed a significant correlation with the company's financial risk. Shareholding ratio of board of directors was not significant for financial risk. There was an inverse correlation between board position setting and financial risk, but it was not statistically significant. Based on the results of this study, this study explains how to improve the company's board structure and reduce financial risks and suggests proposals to reduce financial risks and further research direction.
Abstract
The study of financial risk is a critical issue in financial accounting because the existence of financial risk threatens the life of the enterprise. Improper handling of financial risks by companies puts business at risk. A company's financial risk is caused by several internal or external factors such as unreasonable corporate governance structure. As the core of corporate governance, the board of directors supervises the executives of the company on behalf of the investor. So, the company is inevitably responsible for financial risk. Therefore, this study studied the relationship between board structure and financial risk. This study theoretically and empirically analyzes the relationship between board structure and corporate financial risk using four aspects which are board size, board position setting, board meeting frequency, and board share ratio. This study selected A-share manufacturing companies in Shanghai and Shenzhen stock markets in China during 2011-2018. In addition, descriptive statistics, correlation coefficient analysis, and linear regression analysis were used to study the impact of the board structure on corporate financial risks. This study found that the board structure of manufacturing companies had a greater impact on financial risk than other factors. board size and the frequency of board meetings also showed a significant correlation with the company's financial risk. Shareholding ratio of board of directors was not significant for financial risk. There was an inverse correlation between board position setting and financial risk, but it was not statistically significant. Based on the results of this study, this study explains how to improve the company's board structure and reduce financial risks and suggests proposals to reduce financial risks and further research direction.
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