An Empirical Study On Risk-taking Influenced By Corporate Governance Of Listed Financial Institutions In China

Corporate Governance is the most important organization structure under modern enterprise system.The Asian financial crisis of 1997,the subprime mortgage crisis of 2008 in United States has caused great losses to the international finance market and world economy,exposing the frangibility of financial system and the destruction of financial crisis.Corporate Governance is regarded as the hidden reason of the financial crisis.Therefore,the steadiness and governance of the financial system has become a hot-spot globally.The relation between corporate governance and the exposure to risk of the financial institutes has become the focus of the global market.Regarding the domestic situation in China,there have been forty-two financial instituitions listed.As the domestci financial system has become more and more open,the financial sector is facing increasing competition and uncertain elements domestically and internationally.Under the background of global financial crisis,the ability to prevent or solve different financial risk has become very important during the path to reform the financial sector.We use classic and frontier theory for reference,and study the issue of risk-taking of financial firms from the perspective of corporate governance.Our data comes from 16 listed banks,3 financial trust companies,18 trust,futures companies and four listed insurance company in China during the period of five years from 2007 to 2011.We use total stock market risk,system risk and special risk to measure the risk-taking level of financial firms.We use the corporate governance index and its six components computed by the Chinese academy of governance of Nankai university and corporate governance factors to measure the level of corporate governance factors.Using mixed OLS model,we check whether and how the corporate governance influence the risk-taking level of listed financial institutions in China.The research has found:Firstly,the overall level of Corporate Governance reflected by the Coporate Governance index is highly negative related to the risk-taking ability of the domestic financial instituitions listed.The higher the level of Corporate Governance,the lower risk it takes.Secondly,the Corporate Governance sub-index representing the shareholder governance and the board of advisor governance is highly positive related to the risk-taking ability of the domestic financial institutions listed.It explains that the shareholder governance and board of advisor governance are the main governance mechanism that influence the risk-taking ability of financial institions listed.