Discretionary impacts of the risk management committee attributes on firm performance: do board size matter?

Abstract

PurposeWhile there is an increased demand from various corporate stakeholders on the need for public companies to have risk management frameworks as well as a stand-alone risk management committee to mitigate risks and simultaneously improve performance, this study investigates the effects of the risk management committee attributes on firm performance, and the role of board size is highlighted on this relationship in Malaysian listed companies.Design/methodology/approachBoth accounting- and market-based performance measures have been used for measuring performance. A dynamic model using the generalized method of moments (GMM) has been employed to control for potential endogeneity, simultaneity and unobserved heterogeneity.FindingsThe findings reveal that risk management committee attributes such as size, independence and meetings negatively affect book-based performance measures and positively affect market-based performance measures. Moreover, board size positively moderates the risk management committee attributes and performance relationship. The study embraces the predictions of agency theory and resource dependence theory.Practical implicationsThe findings are practically significant for Bursa Malaysia, Securities Commission Malaysia to assess the compliance of the Corporate Governance Code (MCCG, 2017) and for academia to further explore significant relationships in other emerging economies.Originality/valueThe paper contributes to multiple aspects: first, it studies the impact of risk management committee attributes on firm performance; second, it investigates the moderating effect of board size on RMC–performance relationship; in the end, the study employs dynamic modeling for estimation process to avoid dynamic endogeneity considered a main econometric problem for CG–performance relationships.