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Risk governance and bank profitability in ASEAN-5: a comparative and empirical study

Etikah Karyani (Department of Accounting, Indonesia Banking School, Jakarta, Indonesia)
Setio Anggoro Dewo (Department of Accounting, Universitas Indonesia, Depok, Indonesia)
Wimboh Santoso (Financial Services Authority, Jakarta, Indonesia)
Budi Frensidy (Department of Accounting, Universitas Indonesia, Depok, Indonesia)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 7 January 2020

Issue publication date: 24 April 2020

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Abstract

Purpose

The purpose of this paper is to highlight the disparity between the disclosures of risk governance (RGOV) categories, namely, structures both at the board and management level, and RGOV practices among five of the Association of Southeast Asian Nations (ASEAN-5) countries. Furthermore, this paper investigates the effects of RGOV and its categories on return on assets (ROA).

Design/methodology/approach

Using 285 ASEAN-5 bank-year observations comprising hand-collected data for the period of 2010–2014, RGOV indexes are developed on the basis of 12 of the 13 governance guidelines published by the Basel Committee.

Findings

Although some banks are found to be early adopters, there is an increasing trend of disclosure for all of the investigated categories. Furthermore, there are no effects of the overall RGOV, board-level RGOV structure and risk management practice on ROA. However, the effect of the management-level RGOV structure on ROA is negative and significant.

Research limitations/implications

Measurements of RGOV indexes are based solely on the examination of criteria that have not been previously tested. Other limitations are related to the information completeness, subjectivity and interpretation.

Practical implications

Management-level RGOV tends to decrease profitability because of the additional costs related to its implementation. Financial regulators may find this result useful as feedback to evaluate the effectiveness of regulation and possible future improvements.

Originality/value

This paper’s uniqueness lies in constructing new RGOV indexes on the basis of the latest bank governance guidelines from the Basel Committee issued on July 9, 2015.

Keywords

Acknowledgements

The views expressed in this paper are the authors’ only and do not necessarily reflect those of Financial Service Authority (OJK). This paper was presented at International Conference on Finance, Management and Business (ICFMB), Jakarta, Indonesia, December, 12 2017, International and National Conference in Business Administration and Accountancy (INCBAA), Khon Kaen, Thailand, February, 22–23 2018. This paper is a part of The Best Paper at International Accounting Conference, Yogyakarta, Indonesia, August, 27-29 2017. This research was supported by Ristekdikti and Indonesia Banking School, Jakarta, Indonesia. The authors hereby acknowledge that the present study is a part of the authors’ unpublished PhD dissertation. The authors are grateful to Fitriani, Dr; Hilda Rossieta, PhD; Ancella A. Hermawan, Dr; Darminto, Dr; and Telisa Aulia Falianty, Dr for their assistance with particular techniques and comments that greatly improved the manuscript.

Citation

Karyani, E., Dewo, S.A., Santoso, W. and Frensidy, B. (2020), "Risk governance and bank profitability in ASEAN-5: a comparative and empirical study", International Journal of Emerging Markets, Vol. 15 No. 5, pp. 949-969. https://doi.org/10.1108/IJOEM-03-2018-0132

Publisher

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Emerald Publishing Limited

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