84th International Atlantic Economic Conference

October 05 - 08, 2017 | Montreal, Canada

Boards’ experiences and firms’ risk-taking

Saturday, 7 October 2017: 5:25 PM
Yu-Fen Chen, Ph.D. , Business Administration, Da-Yeh University, Changhua, Taiwan
Fu-Lai Lin, Ph.D , Finance, Da-Yeh University, Changhua, Taiwan
Sheng-Yung Yang, Ph.D. , National Chung Hsing University, Taichung, Taiwan
Literature regarding the impacts of boards’ characteristics on firms’ risk-taking focuses on how the boards’ structures mitigate the agency's problems to facilitate corporate research and development (R&D) investments. However, few have ever been on the influence of the board's human capital. The directors accumulate their human capital through their past experiences, including education levels, tenures, and previous career experiences. This paper aims to investigate whether boards’ entrepreneurship in terms of previous experience working in venture capital contributes to more or less corporate risk-taking decisions regarding R&D investing and firm focus, by using panel-data regression analysis. The risk-taking policies include firms’ R&D investments and firm focus.

We hand-collect firm directors' careers with venture capital experiences from the Market Observation Post System (MOPS) of the Taiwan Stock Exchange, matched with those without venture capital experiences, to investigate the relationship between boards’ experiences and risk-taking policy adoption. Firms’ R&D expenditures and financial statistics are from the database of the Taiwan Economic Journal (TEJ). Using a large sample of publicly listed firms in the emerging markets of Taiwan Stock Exchange and Taipei Exchange from 2008 through 2014, this paper finds that the board directors with VC backgrounds boost corporate risk-taking by increasing R&D spending and firm focus, which supports the hypothesis that boards’ VC experiences have positive impacts on firms’ decisions of risky policies.

Moreover, the study examines whether corporate D&O liability insurance in Taiwan boosts corporate risk-taking, taking the board entrepreneurship into consideration. The results suggest that the adoption of corporate D&O liability insurance encourages VC-background directors to increase R&D spending, indicating that the protected directors with VC background are less risk-averse.

Key words: boards’ entrepreneurship; venture capital; R&D investment; firm focus; directors’ and officers’ liability insurance