The Effect Of Corporate Governance Structure On Financial Risk

The financial risk management has always been occupying an important position in the field of financial management. Bankrupt are very common both domestic and abroad due to the financial risk. While most insolvencies are caused by imperfect corporate governance, people gradually begin to pay attention to the corporate governance structure. It is worthy of our serious consideration of how to build an efficient and reasonable corporate governance structure which can reduce the financial risk to some extent. At this stage, it is feasible to analysis the influence corporate governance structure on financial risks and then find out a scientific and reasonable governance structure to reduce financial risks.In order to study how the medium and small corporate governance structure affects the financial risks, this paper divides corporate governance structure into three aspects and selects several representative variables to study their impact on the company’s financial risks. Specifically, we use financial leverage to measure the financial risks, and the corporate governance structure is divided into three aspects:board characteristics, ownership structure, executive compensation, and then we selected eight explanatory variables to analyze their impact on financial risk. The empirical results show that China’s medium and small corporate governance structure needs further improvement. For those variables which have a significant financial impact on financial risk, we can try to make these factors as a breakthrough, seeking ways to reduce the company’s financial risks.This paper is divided into five parts, the main contents of each part are as follows:Part one mainly introduces the background, significance and the research status at home and abroad. The second part is the theoretical foundation of governance structure of medium and small listed companies affecting the financial risks:This section first define the relevant concepts, describes three related theories:agency theory, property rights theory and the theory of bounded rationality, then expounds the status and characteristics of the corporate governance structure of medium and small board listed companies. The third part is the research design. This part proposes hypothesis, establishes an empirical model and defines corresponding variables based on three theories. The fourth part is the empirical analysis. This part selects the Shenzhen medium-sized and small Board as the study sample. According to the established model, we tested how corporate governance structure acting on the financial risks through software spass19.0.The fifth part is the conclusions. Through regression results above, this section puts forward corresponding countermeasures on how to build a reasonable corporate governance structure to reduce financial risks.Empirical studies show that China’s medium and small board governance structure of listed companies still need to be improved while most of the small board listed companies own potential financial risk. Corporate governance structure and financial risks do have significant relationship between them, ownership concentration, the nature of the controlling shareholder, executive stake and executive compensation also have a significant impact on company’s financial risk, and on the other hand,number of directors, independent directors proportion and two grade-one have yet to play out of their due role.