The governance of risk management: The importance of directors' independence and financial knowledge. Issue 3 (26th August 2019)

• Record Type: Journal Article
• Authors: Dionne, Georges; Chun, Olfa Maalaoui; Triki, Thouraya
• Is Part Of: Risk management and insurance review. Volume 22:Issue 3(2019)
• Page Start: 247
• Page End: 277
• Publication Date: 2019-08-26
• Subjects: Risk (Insurance) -- Periodicals; Risk management -- Periodicals; Risk (Insurance) -- United States -- Periodicals; Risk management -- United States -- Periodicals; 368
• DOI: 10.1111/rmir.12129
• Languages: English
• ISSNs: 1098-1616

Abstract

Abstract: We test the effects of the independence and financial knowledge of directors on risk management and firm value in the gold mining industry. Our original hand‐collected database on directors' financial education, accounting background, and financial experience allows us to measure the effect of financial knowledge on risk management activities. We show that directors' financial knowledge increases firm value through the risk management channel. This effect is strengthened by the independence of the directors on the board and on the audit committee. Extending the dimension of education, we show that, following unexpected shocks to gold prices, firms with financially educated directors are more effective in hedging than average firms in the industry. Firms that hedge more also attracts highly educated directors on their board and audit committee. As a policy implication, our results suggest adding the experience and education dimensions to the 2002 Sarbanes–Oxley Act and New York Stock Exchange requirements for better governance.