Corporate governance, firm characteristics and risk management committee formation in Australian companies

Abstract

Purpose The purpose of this paper is to examine how a risk management committee (RMC), as a newly evolving subcommittee of the board of directors, functions as a key governance support mechanism in the oversight an organisation's risk management strategies, policies and processes. However, empirical evidence on the factors associated with the existence and the type of RMCs remains scant. Design/methodology/approach Using an agency theory perspective, this study investigates the association between board factors such as proportion of nonexecutive directors, Chief Executive Officer duality, and board size; as well as, other firmrelated factors (e.g. auditor type, industry, leverage, and complexity), and the existence of a RMC, and the type of RMC (namely, a separate RMC versus one that is combined with the audit committee). Data was collected from the annual reports of the top 300 Australian Stock Exchange (ASX)listed companies. Findings The results, based on logistic regression analyses, indicate that RMCs tend to exist in companies with an independent board chairman and larger boards. Further, the results also indicate that in comparison to companies with a combined RMC and audit committee, those with a separate RMC are more likely to have larger boards, higher financial reporting risk and lower organisational complexity. Research limitations/implications Data limited to top 200 top ASXlisted companies, thus restricting generalisability of the results. Originality/value The findings of this study provide additional information on the use and design of RMCs in a voluntary setting. © 2009, Emerald Group Publishing Limited