Governance mechanisms and downside risk

•Our study is one of the first that relates corporate governance to downside risk.•More corporate governance mechanisms are involved in this study.•We find the corporate governance reduces downside risk while increasing firm value.•Good corporate governance relates to the conservatism and transparency of the firm.

This study uses data for Taiwanese firms from 2002 to 2012 to investigate the relation between corporate governance and downside risk. Our results show that good corporate governance reduces downside risk while increasing firm value. That is, firms with high managerial ownership, market power, and independent boards appear to have lower downside risk, likely because their decision-making is more transparent than that of firms without these characteristics.