Does Corporate Governance affect Risk-taking and the Performance of Firms? An Empirical Analysis on the Italian stock market

Corporate Governance includes a system of rules regarding ownership structure and the Board of Directors of companies. The relationship between ownership structure and firm performance and between the board of directors and firm performance has been widely explored, but the results seem to be mixed. Instead, the relationship between risk-taking and the corporate governance of the company seems to be less investigated. Using a sample of 40 Italian listed companies, we investigate the relationship between risk and corporate governance, and between performance and corporate governance. We use two different measures of risk: the risk of the specific enterprise, measured by the standard deviation of stock returns, and the systematic risk of the securities. Investigating the period 2002-2011, which includes both the pre-crisis time horizon and the one during the crisis, we find a negative and statistically significant relationship between ownership concentration and risk-taking, while we find a positive and statistically significant relationship between board ownership and risk. Instead of a positive definite linear relationship, we find that there exists a negative relationship between the performance measured by ROA and Tobin's Q and the ownership concentration during certain periods or on average, which would also seem to take a U-shape.