Board Effectiveness and Short Termism

Research output: Contribution to journalArticlepeer-review


We examine whether more effective boards in terms of size, experience, independence, and shareholding, as discussed in the 2010 UK Corporate Governance Code, limit excessive short-term risk taking or short-termism. We use a state-of-the-art asset pricing model that enables the disentangling of short-term risk (related to short-term returns) and long-term risk (related to long-term returns), and use the former as a proxy for short-termism, where the short-term component not only represents the time horizon in which we are interested but also the risk that is not related to fundamentals (Campbell and Vuolteenaho, 2004).

We examine 1,129 firms in the UK over a horizon of 18 years, i.e., January 1990-December 2008 and find that more effective boards reduce the level of short term risk and this result is robust to various types of short term risk (overall, down side) and specifications (directly or indirectly via accounting variables that reflect managerial decisions).
Original languageEnglish
Pages (from-to)185-209
JournalJournal of Business Finance and Accounting
Issue number1&2
Publication statusPublished - Jan 2013

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