Impact of Corporate Governance on Firm Risk: A Literature Review.

Corporate governance encompasses a broad spectrum of mechanisms intended to reduce agency problems by directing and controlling management activities. Major corporate scandals and failures at the international level, like Enron, WorldCom, Tyco, HealthSouth, and others, have increased the need for strengthening the governance system in companies. This paper aims to review the research on the impact of corporate governance on firm risk. Through literature review, the paper finds that most studies considered internal corporate governance variables like board independence, number of members on board, role of women directors on board, CEO duality, and institutional ownership. The paper guides policymakers, regulators, investors, and managers by providing evidence on corporate governance mechanisms and their role in reducing firm risk. [ABSTRACT FROM AUTHOR]