Corporate governance and bank risk in Asean countries

Abstract

This thesis examines the determinants of bank risk governance structure, and the impact of risk governance structure and risk governance effectiveness on bank risk-taking behavior, as well as the impact of risk governance structure and risk governance effectiveness on risk management effectiveness. In the context of regulators around the world trying to provide guidelines for banks to make corporate governance of banks more effective after the 2008 financial crisis, the study of bank risk governance structure and its effectiveness has become increasingly important. By using a sample of 104 commercial banks in ASEAN countries over 2002-2019 period and applying empirical analysis techniques such as FE/RE, Logit, 2SLS, and GMM, this study provides some important findings. First, regarding bank risk governance structure determinants, this thesis finds that risk governance structure (including audit committee size, audit committee independence, financial and accounting experts on the audit committee, audit committee meeting frequency, risk committee existence, and external audit quality) relates positively to a bank‘s scope of operation and monitoring benefit, but negatively to monitoring cost and CEO‘s negotiation power. Second, regarding the impact of bank risk governance structure and risk governance effectiveness on risk-taking behavior, this thesis finds that risk governance structure significantly affects bank risk-taking behavior (measured by insolvency risk, credit risk and operational risk). We also find that the role of risk governance remains unchanged following the 2008 financial crisis and that the relationship between risk governance effectiveness and risk-taking behavior depends on a country‘s institutional quality. Finally, regarding the impact of bank risk governance structure and risk governance effectiveness on risk management effectiveness, this thesis reveals that risk governance structure and its effectiveness are positively associated with risk management effectiveness.This study contributes to the existing corporate governance of bank literature by providing evidence that risk governance structure and its effectiveness play an important role in constraining risk-taking and in enhancing risk management effectiveness. The findings of this thesis offer some useful implications for bank regulators, shareholders, and creditors. Regulators can establish guidelines related to risk governance to manage risk-taking activities and maintain bank stability. Bank shareholders can require banks to restructure their risk governance structure to reduce agency problems relating to risk-taking. Finally, creditors can consider bank risk governance structure as an important factor when considering extending funds to particular banks.