TY - JOUR T1 - Board Effectiveness and Firm Risk JF - The Journal of Impact and ESG Investing SP - 68 LP - 86 DO - 10.3905/jesg.2020.1.006 VL - 1 IS - 2 AU - Lars Kaiser Y1 - 2020/11/30 UR - https://pm-research.com/content/1/2/68.abstract N2 - This study provides empirical evidence on the impact of board effectiveness on firm risk. The author considers the Board Shareholder Confidence Index (BSCI) to proxy for board effectiveness of firms included in the S&P TSX Composite. Risk measures considered in this study include total risk, idiosyncratic risk, systematic risk, and volatility-of-volatility. He reports statistically significant negative relationships between board effectiveness and alternative firm risk measures, except for systematic risk. This relationship is particularly strong during periods of market distress. Considering analyst coverage and strategic ownership as competing monitoring channels for board effectiveness, the author observes a substitution effect during normal market periods and a supplementary effect during periods of market distress when an investor’s level of uncertainty is high and “every little bit helps.” The findings also note the importance of corporate governance aspects in an ESG risk management framework.TOPICS: ESG investing, VAR and use of alternative risk measures of trading risk, risk managementKey Findings• Board effectiveness is associated with lower levels of firm risk.• Analyst coverage acts as a substitute for board effectiveness with respect to total risk, idiosyncratic risk, and volatility-of-volatility.• Strategic ownership and ownership concentration act as a substitute for board effectiveness with respect to systematic risk.• In general, alternative monitoring mechanisms act as substitutes during normal times but are supplements during periods of distress when uncertainty is high. ER -