Systemic risk in non financial companies: Does governance matter?

https://doi.org/10.1016/j.irfa.2023.102601Get rights and content
Under a Creative Commons license
open access

Highlights

  • NFCs are systemically important

  • Good corporate governance constrained both systemic risk exposure and contribution of NFCs

  • Different internal and external corporate governance mechanisms are sometimes substitutes and sometimes complementary

  • This “governance effect” is significant both in non-crisis and crisis periods

Abstract

The paper investigates the impact of four key corporate governance mechanisms - board, audit, compensation and ownership, and anti-takeover provisions - on the exposure and contribution to systemic risk of >400 US non-financial companies (NFCs) listed in S&P500 from 2005 to 2020. Our results show that in NFCs, unlike in banks, good corporate governance practices constrain both systemic risk exposure and contribution. We find a complementary effect between internal corporate governance mechanisms in reducing both the contribution and the exposure to systemic risk, and a substitution effect between internal and external governance practices in constraining the exposure of NFCs to systemic risk. Moreover, strong corporate governance practices are shown to constrain systemic risk both in steady-state conditions and in times of distress.

Keywords

Systemic risk
Non-financial companies
Corporate governance
Financial distress

JEL code

G01
G34

Cited by (0)