Governance and risk interdependencies among family owned firms

The paper examines the role and impact of corporate governance mechanisms upon the operating risks of Indian listed firms. The recent global financial crisis was primarily attributed to excess risk–taking. This turmoil in the financial markets had a widespread effect on all industries and raised pertinent questions on the effectiveness of firm level governance practices. Impact of corporate governance practices, vide a constructed board governance index, has been examined on the risk taking behaviour of firms. Utilising a sample of 377 firms with yearly data for 6 years from 2006 to 2012, 2262 firm year observations have been analysed. Results confirm that firms with good corporate governance practices are effective in constraining excess risk taking. An instrumental variable approach is adopted to control for endogeneity, which also supports and substantiates the results.