Does board oversight reduce risk: An assessment of audit committee, risk management committee, and compensation committee

The objective of this study is to measure the relative impact of audit, risk, and compensation committees on risk reduction among publicly traded pharmaceutical and energy firms in the US. The SeekEdgar and COMPUSTAT databases were used to extract data on 7,739 pharmaceutical and energy firms in the United States from 2010 to 2022. Risk measures, including insolvency risk, systematic risk, and ROA volatility, and control measures of leverage, tangibility, and firm size, were extracted from the COMPUSTAT database. The results of the multivariate linear regression analysis show that the audit committee reduces systematic risk and ROA volatility, and that the risk management committee reduces systematic risk. We employ novel oversight measures based on the frequency with which the terms audit committee, risk management committee, and compensation committee are mentioned in annual reports and Form 10-Ks. This study supports the notion that board committee oversight has a stronger influence on market measures, such as systematic risk, than accounting measures, such as bankruptcy risk.