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This study examines the effectiveness of the corporate governance structure when coping with any potentially unexpected events. For the purpose of this research, an event study has been conducted in order to investigate the market responses of various firms through the Cumulative Average Abnormal Return (CAAR) of the stocks listed on the Pakistan Stock Exchange (PSX). The stocks data under consideration is that which was presented after the assassination of Benazir Bhutto in 2007. The overall results indicate that firms that are governed conventionally do not perform well in the markets during a crisis situation. In our comparison of conventionally, and non-conventionally governed firms, the overall pooled results show that the former record a lower CAAR. This, in short, indicates that conventional corporate governance structures may not be equipped to take timely and dynamic actions that are deemed necessary in the face of a crisis. Moreover, our results suggest that firms which have less diversified ownership, and governance mechanisms are less vulnerable to such unanticipated events. There are two reasons that support our hypotheses: first, strict governance mechanisms, and a resultant cautious/conservative approach may not allow firms to take timely and proactive decisions during these situations and second, there is a lower chance of existing agency problems, as family owners would be working for the protection of their own wealth during these events. Therefore, our findings ultimately reveal that the conventional corporate governance structures that work during normal time period, may become ineffective during a crisis. This study, aims to fill a gap in the literature in order to provide fresh insights into the stock market dynamic, and corporate governance risk management. Furthermore, it also highlights the benefits of family owned structures, and unconventional corporate governance systems, that may outperform conventional governance structure in some situations. This, however, raises the question whether one governance framework could be the correct fit in all the situations.

Purpose –The extant literature is divided regarding the impacts of firm size on financial derivatives and the empirical studies provide conflicting results and offer opposing viewpoints. There is strong evidence to suggest that firm characteristics differ between larger and smaller sized firms and that derivative users are generally larger firms. Firm size may also influence the risk management behavior of corporate governance and reveal some biases and personal agendas. However, this area is largely unexplored and warrants investigation. This is the first study that examines whether corporate governance risk management over financial derivatives is sensitive to firm size considerations. Design/methodology/approach – The authors employ Maddala’s simultaneous equations methodology to examine the firm’s derivatives usage simultaneously with debt borrowings, as both form basis of the capital structure decisions of the firm. Further we split the data into large and small size firms to examine the size effects of corporate governance risk behavior, departing from the method employed in the derivatives literature. Findings – The authors provide empirical evidence to suggest that corporate governance is consistent in their risk management of financial derivatives use and that they are not influenced by any firm size considerations. Research limitations/implications – Additional examination of the risk and value effects on firm performance based on firm-size differences would provide additional insights into the hedging effectiveness of corporate governance in respect to financial derivatives. Practical implications – The findings provide assurance that corporate governance is not influenced by firm size with respect to financial derivatives. Therefore, governance regulations and accounting standards requirements do not need to provide any restrictions/modifications on the size of firms employing financial derivatives instruments. Originality/Value – This is the first study to examine the effects of firm size on corporate governance risk management over financial derivatives. The area is unexplored and has far reaching consequences. If firm size has an impact on corporate governance, then regulators would need to develop varying controls based on the firm size to cater to differences in risk management by corporate governance. As it is corporate governance mechanisms do not make any distinctions based on firm size, and the study supports the need for one set of corporate governance controls across all size firms.

Firms respond differently to the level of financial distress faced by the firm (Purnanandam 2004, 2008). Similarly, financial constraints could have a varying effect on corporate governance risk management behavior. This study examines the monitoring effects of corporate governance on financial derivatives usage when controlling for different levels of financial distress and is an extension of an earlier paper on the subject (Tashfeen 2016). The results show that selective corporate governance mechanisms are sensitive to varying financial distress. When levels of leverage are considered, then the corporate governance-derivatives relationship either becomes insignificant or negative for audit committee size, CEO age, block holders, board size and board meetings. This suggests that varying intensities of financial distress need to be incorporated in studies where the risk management impacts of corporate governance are examined. The study uses a simultaneous equations model to examine the effects of leverage and derivatives decision simultaneously. It is the first study to consider levels of financial distress in a study of corporate governance-derivatives risk management and makes important contributions to the literature.

This is the first comprehensive study of board gender diversity and its policies on derivatives risk management, through an examination of the value, risk, and hedging effects on risk control. Applying a simultaneous equations model to address the endogenous effects of financial and derivatives hedging decisions, our findings suggest that women directors provide a monitoring impact on derivatives decisions that result in a hedging value premium and reduction in risk. Further, gender diversity influence on investment policies achieve a value premium, and its financial strategies provide both a value enhancing and risk reducing benefit through the reduction in leverage, within firms that hedge with derivatives. While, in response to equity risk gender-diverse boards encourage the increase in cash reserves. Additional quantile analyses support the monotonic associations of gender diversity with firm value, and with firm risk. We find women directors on boards are effective risk managers and policy makers. Whether this may be attributed to risk aversion as proposed by some researchers, conservative attitude or just better risk acumen, it suggests that gender diversity adds value to boards of directors in their risk management of financial derivatives and therefore board gender diversity should have a larger representation on boards of firms that use derivatives.