Board diversity and firm risk-taking in the tourism sector: Moderating effects of board independence, CEO duality, and free cash flows

Abstract

This study examines the effect of board diversity on risk-taking for tourism firms and analyzes the moderating effect of board independence, CEO duality, and free cash flows in this proposed relationship. Using a composite index of board diversity and a sample of tourism firms from the US hotel, restaurant, and airline industries, we find that greater board diversity leads to lower risk-taking, measured in standard deviation of return on assets. Moreover, we report that the risk-reduction effect of board diversity is more profound when tourism firms have less board independence and less free cash flows for investments. When board diversity is decomposed into relation-oriented and task-oriented diversity attributes, we find that only the task-oriented diversity is influential in reducing firm risk-taking for tourism firms. Akin to main analysis, the board independence and free cash flows are significant moderators of the relationship between task-oriented diversity and firm risk-taking.

Hospitality and tourism firms' board characteristics, board policies and tourism sector performance: what is the nexus?

“…Hence, the empirical evidence, contrary to our expectations, revealed that board independence-related policies do not currently serve the H&T sector's development. Although, in recent years, board independence has been accepted as an indispensable mechanism of board monitoring (Al-Najjar, 2014; Ozdemir et al. , 2022), board composition beyond maintaining a certain number of nonexecutive directors is essential.…”

“…Hence, the empirical evidence, contrary to our expectations, revealed that board independence-related policies do not currently serve the H&T sector's development. Although, in recent years, board independence has been accepted as an indispensable mechanism of board monitoring (Al-Najjar, 2014;Ozdemir et al, 2022), board composition beyond maintaining a certain number of nonexecutive directors is essential. Moreover, based on the prior empirical evidence that board policies reinforce directors' abilities to ensure firms' financial stability (Gaganis et al, 2020), H&T firms are advised to review and revise their board-independence policies to recruit experienced directors in the sector, furnish them with the necessary autonomy and integrate them into corporate decision-making processes.…”

Board interlocks and corporate risk-taking: An empirical analysis of listed companies from tourism and related industries in China

“…First, from a theoretical perspective, this study contributes to the tourism and hospitality literature pertaining to corporate governance by revealing the positive relationship between board interlocks and corporate risk-taking, supporting the proponents of the resource dependence theory and the collusion theory. Although many hotel and tourism literatures have investigated the factors of corporate risk-taking, they mainly focus on the diversification of the board of directors (Lee and Thong, 2022; Ozdemir et al, 2021), CEO characteristics (Lee and Moon, 2016), CEO overconfidence (Seo and Sharma, 2018), and executive compensation incentives (Seo and Sharma, 2013). There are also some studies on chain directors, but these studies mainly examine the impact of board interlocks on the financial performance of tourism enterprises (Ooi et al, 2015; Song et al, 2021; Yousaf et al, 2021).…”

“…Corporate risk-taking (Risk i,t ). Common indicators of corporate risk-taking include the volatility of return on assets (Roa) (e.g., Boubakri et al, 2013;John et al, 2008;Ozdemir et al, 2021), stock return volatility (e.g., Bargeron et al ., 2010;Coles et al, 2006), debt ratio (e.g., Faccio et al, 2011Faccio et al, , 2016, and the possibility of firm survival (e.g., Faccio et al, 2016). Due to the special institutional and policy environment in China, the living conditions of listed companies in China can be affected by government policies.…”

Corporate Governance and Risk Taking: Evidence from Italian Listed Companies

“…The association between risk and the aforementioned factors has been largely investigated by previous research, leading to mixed evidence (Di Pietra et al, 2008;Ozdemir et al, 2021).…”