Board Informal Hierarchy And Corporate Risk-taking

Corporate risk-taking reflects the manager's choice of investment projects with uncertain return.Some studies show that risk-taking is positively related to capital allocation efficiency of enterprise and firm value.From a social perspective,high risk-taking can help to enhance factor productivity and overall economic growth.In contrast to risk-neutral shareholders,managers are often risk-averse;and the manager's conservative altitude to investing in pursuit of self-interest may lead to shareholder value being violated.Therefore,proper corporate governance has a very important impact on corporate risk-taking and firm value.The board of directors is a cornerstone of modern corporate governance structure,which plays an important role in connecting shareholders and managers.Since directors are responsible for corporate strategic decisions and fulfill the important function of supervising managers,they have a very important influence on corporate risk-taking.The installment of directors of higher social capital can bring key resources and external links to firm and provide help to set business strategy.More importantly,as self-interest behavior of managers may lead to abandonment of high-risk projects with positive net present value,shareholder value will inevitably be infringed without the supervising of board.At present,most of the related studies follow the traditional view of the overall structure,such as the board size,the proportion of independent directors and other factors,to analyze their impacts on corporate risk-taking,without considering internal communication and coordination factors of board.In fact,as a collective decision-making body,the operation of board will be affected by the internal tacit power.Although directors are equal because of the one-man-one-vote principle,differences in the status will cause unequal order structure.Based on the related research,the paper uses the number of corporate boards that a director simultaneously serves to measure the individual status,and uses the Gini coefficient to calculate informal hierarchy of board,and establishes regression model to verify its relationship with corporate risk-taking.Firstly,the paper reviews the domestic and foreign literature related to informal hierarchy of board and corporate risk-taking.Secondly,according to agency theory and resource dependence theory,the paper analyzes the relationship between informal hierarchy of board and corporate risk-taking.Then the paper selects A-share listed companies in 2011-2015 as the sample,and establishes the regression model to test the impact of informal hierarchy of board on corporate risk-taking;Finally,the paper further analyzes the relation from the perspective of product market competition,nature of property rights and board size.The main conclusions of this paper are as follows:Firstly,informal hierarchy of board is positively related to corporate risk-taking;Secondly,informal hierarchy of board is positively related to corporate risk-taking only when product market competition is high.When product market competition is low,informal hierarchy of board has no significant relationship with corporate risk-taking;Thirdly,only in private firms,informal hierarchy of board is positively related to corporate risk-taking,while there is no significant relationship in state-owned enterprises;Fourthly,only when board size is large,informal hierarchy of board is positively related to corporate risk-taking,while there is no significant relationship when board size is small.According to the conclusions,the paper puts forward some pertinent suggestions.