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date: 17 November 2018

Abstract and Keywords

This chapter takes a look at the interrelationships between business risk and corporate performance, and their impact on financial reporting behavior, managerial incentives, and the possibility of expensive and unexpected corporate governance failure. It then addresses the argument that unexpected corporate governance failure may become even more probable due to a systematic board loyalty bias that has led to executives being awarded generous compensation packages. The chapter reveals that managers are being excessively rewarded for taking hidden financial risks. It also further notes that these high business and financial risk strategies are usually not consistent with the interests of the shareholders.

Keywords: business risk, corporate performance, financial reporting behavior, managerial incentives, corporate governance failure, board loyalty bias, compensation packages, financial risks

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