Board faultlines and risk-taking

We use the 2009-2020 data of Chinese A-share non-financial listed companies to explore the impact of board faultlines on corporate risk-taking. The results show that: (1) Board faultlines reduce corporate risk-taking capacity, and mainly manifested as a decline in idiosyncratic risk-taking. (2) The impact of faultlines is primarily driven by faultlines of cognitive characteristics; the impact of faultlines of demographic characteristics is insignificant. (3) Board faultlines influence corporate risk-taking by disrupting internal board order, lowering its monitoring willingness and ability, and reducing investment efficiency. (4) The heterogeneity test results identify four firm-level factors: industry competition, performance pressure, financial risk, and equity incentives, which can activate faultlines.

Automated summary

This study uses the data of Chinese A-share non-financial listed companies from 2009 to 2020 to explore the impact of board faultlines on corporate risk-taking. The results show that board faultlines reduce corporate risk-taking capacity, primarily by decreasing idiosyncratic risk-taking. The impact of faultlines is driven by cognitive characteristics rather than demographic characteristics. Board faultlines influence corporate risk-taking by disrupting internal board order, lowering monitoring willingness and ability, and reducing investment efficiency. The heterogeneity test identifies industry competition, performance pressure, financial risk, and equity incentives as activating factors for faultlines.