ETD

• Board
• Empirical analysis
• ESG performance
• Hedging
• Modelling

The aim of this study is to examine the relationship between board size and corporate hedging activities, addressing a relevant gap in the existing literature on corporate risk management. Prior research has extensively analyzed corporate hedging policies, primarily focusing on CEO characteristics, managerial incentives, and compensation structures. These studies are often conducted within specific geographical contexts, with a strong emphasis on countries such as the United States, the United Kingdom, and France. While this stream of literature has provided important insights into the role of top executives in shaping firms’ risk management strategies, it has largely overlooked the influence of board-level governance mechanisms. In particular, relatively few studies have investigated how board characteristics, such as board size, affect corporate hedging decisions. This omission is notable given the central role of the board of directors in supervising strategic choices and overseeing corporate risk management policies. Board size may influence hedging behavior through several channels. Larger boards may benefit from a broader range of expertise, experience, and perspectives, potentially leading to more comprehensive discussions and more cautious approaches to risk. At the same time, larger boards may enhance monitoring effectiveness, reducing managerial discretion and encouraging the adoption of formal risk management tools such as hedging instruments. To contribute to this underexplored area of research, this study analyzes a sample of firms included in the Eurostoxx 600 index over the period from 2015 to 2024. The focus on European firms allows the analysis to move beyond the country-specific settings that dominate the literature and to consider a broader institutional environment characterized by diverse governance systems and regulatory frameworks. Using a fixed effects econometric model, the study examines how board size influences the extent of corporate hedging, controlling for firm-specific unobservable characteristics that remain constant over time.
In addition to board size, this study incorporates ESG activities into the analysis. ESG initiatives are increasingly viewed as strategic tools that can help firms reduce their overall risk exposure. A growing body of literature suggests that strong ESG engagement may lower reputational, operational and market risks, thereby acting as an insurance-like mechanism. From this perspective, ESG activities may interact with traditional financial risk management practices, such as hedging, either as complements or substitutes. This study therefore investigates whether ESG performance moderates the relationship between board size and corporate hedging.
The empirical results provide evidence in support of this integrated framework. First, the findings indicate that larger boards are associated with a higher level of corporate hedging. This result is consistent with the view that larger boards enhance monitoring and promote more structured approaches to risk management. Second, the analysis shows that ESG activities negatively moderate the relationship between board size and corporate hedging. In other words, for firms with stronger ESG engagement, the positive effect of board size on hedging is weaker. This suggests that ESG activities may partially substitute for financial hedging by reducing firms’ perceived risk exposure. Despite these contributions, the study is subject to several limitations. First, the analysis is restricted to firms included in the Eurostoxx 600 index, which may limit the generalizability of the results to smaller firms or to firms operating outside major European markets. Second, the data collection relies on a single database, which may introduce measurement constraints. Future research could address these limitations by considering alternative samples, multiple data sources, and additional board characteristics, such as independence or gender diversity, as well as their interaction with ESG activities in shaping corporate hedging decisions.