Effect of Audit Committee Size on Risk Management. Evidence from Selected Listed Firms in Kenya

International Journal of Research and Innovation in Social Science (IJRISS) | Volume III, Issue X, October 2019 | ISSN 2454–6186

Effect of Audit Committee Size on Risk Management. Evidence from Selected Listed Firms in Kenya

Thomas Kiptanui Tarus¹, Dr. Joel Tenai², Dr. Joyce Komen³

¹Ph.D. Student, Department of Accounting & Finance, School of Business and Economics, Moi University Kenya
^2,3Senior Lecturer, School of Business and Economics, Moi University Kenya

Abstract:- The purpose of this study was to determine the effect of audit committee size on financial risk management of 41 listed non-financial firms from 2010-2017 in Kenya. The longitudinal research design was used while the content analysis guide was used as a tool for collecting data from audited financial reports. The binary logistic regression technique was applied and the results revealed that audit committee size had a negative and significant effect on risk management(β = -1.17,p<0.05). Thus, the study concluded thata large audit committee size reduces hedging activities. This is supported by agency theory on conflict of interest in large audit committee size. The study recommends the reduction of audit committee size so as to increase hedging activities.

Keywords: Financial Risk Management, Audit Committee Size, Firm Size, Firm Age

I. INTRODUCTION

In the wake of the latest corporate failures, a number of governance measures have been suggested to improve corporate governance, with a major emphasis on the aspect of risk management. Risk management is a vital practice in enhancing the sustainability of a company that, in the context of globalization, companies face a multitude of risks which are sometimes beyond their reach (Maruhunet al., 2018).In times of uncertainty and worldwide economic crisis, the function of risk management as a platform for enterprise and business management is becoming more fundamental (Grote, 2015).Risk is an occurrence that executives will have to face in order to make a profit and avoid risk, which implies giving up the chance to make a profit. The manager requires to handle risk-stimulating parameters so that they can pursue strategic benefits and possibilities arising from potential risks (Miccolis & Shah 2000).

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