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Article
Publication date: 7 January 2020

Etikah Karyani, Setio Anggoro Dewo, Wimboh Santoso and Budi Frensidy

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…

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.

Details

International Journal of Emerging Markets, vol. 15 no. 5
Type: Research Article
ISSN: 1746-8809

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Article
Publication date: 3 April 2017

Heba Abou-El-Sood

The purpose of this paper is to show the importance of policy discussions on the role of governance in limiting excessive risk-taking at times of turmoil.

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2104

Abstract

Purpose

The purpose of this paper is to show the importance of policy discussions on the role of governance in limiting excessive risk-taking at times of turmoil.

Design/methodology/approach

Corporate governance measures are regressed on measures of risk taking using a sample of US bank holding companies (BHCs) during 2002-2014.

Findings

Results show that BHCs with more concentrated shareholders, more managerial ownership, smaller boards, and less outside directors undertake less risky investments with respect to total assets, loans, and off-balance-sheet items. Capital adequacy effect is overpowering pushing for more risky positions. Finally, banks with good governance push for less risky positions, even with larger capital ratios, during the financial crisis period relative to the precrisis boom.

Practical implications

This paper extends research on the association between bank ownership structure and risk taking. It adds to prior research by examining a key feature of banks, namely, their bank-specific capital adequacy. The relevance of this study stems from recent initiatives undertaken by the Basel Committee, the Group of Thirty (G30), and bank regulators to address deficient corporate governance structures that led to bank breakdowns.

Originality/value

One of the innovations of this paper is the use of risk-weighted measures to proxy for risk taking in banks, using risk weights used by bank regulators to adjust for operational risk, credit risk, and market risk.

Details

International Journal of Managerial Finance, vol. 13 no. 2
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 8 May 2018

Ghada Ben Zeineb and Sami Mensi

The purpose of this paper is to determine the simultaneous effect of corporate governance (CG) of Gulf Cooperation Council (GCC) Islamic banks (IBs) on efficiency and risk.

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1121

Abstract

Purpose

The purpose of this paper is to determine the simultaneous effect of corporate governance (CG) of Gulf Cooperation Council (GCC) Islamic banks (IBs) on efficiency and risk.

Design/methodology/approach

The authors include Shariah supervisory board (SSB) size, Chief Executive Officer (CEO)-duality and ownership structure as CG variables. Efficiency and risk are measured using the data envelopment analysis (DEA)/stochastic frontier analysis (SFA) and Z-score, respectively. This paper also examines the risk-efficiency relationship. To test the hypotheses, the authors used seemingly unrelated regressions on a sample of 56 GCC IBs during the period 2004-2013.

Findings

The results indicate that implementing rigorous CG structures correlate with higher efficiency levels. Particularly, the authors show that the governance structure of IBs allows them to take higher risks to achieve a high efficiency level. In addition, results show that bank efficiency and risk are positively related.

Practical implications

This paper gives some insights to policy makers. It points out detail attention toward the importance of CG in IB that influences the efficiency level and risk-taking behavior. Thus, IB should improve governance procedures that can lead to higher efficiency and survival in a competitive environment and sustain financial crisis. Moreover, the economic conditions of a country are the main determinant of an IB’s efficiency and risk relationships.

Originality/value

The simultaneous effect of the CG of the GCC IBs on efficiency and risk is examined, taking into consideration different CG proxies, i.e., SSB size, CEO-duality and ownership structure, and different efficiency estimation techniques, i.e., SFA and DEA.

Details

Managerial Finance, vol. 44 no. 5
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 20 August 2019

Issal Haj Salem, Salma Damak Ayadi and Khaled Hussainey

The purpose of this paper is to investigate the potential influence of corporate governance mechanisms on risk disclosure quality in Tunisia.

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1129

Abstract

Purpose

The purpose of this paper is to investigate the potential influence of corporate governance mechanisms on risk disclosure quality in Tunisia.

Design/methodology/approach

The authors examine 152 annual reports of Tunisian non-financial-listed firms during 2008–2013, and use the manual content analysis method to measure the risk disclosure quality.

Findings

The authors find that the quality of risk disclosure in Tunisian companies is relatively low, and also find that the quality of risk disclosure is positively associated with institutional ownership, board independence, the presence of women on the board, the presence of family members on the board and the independence of audit committee. Managerial ownership has a negative effect on risk disclosure quality. Finally, the authors find that the revolution decreases the influence of concentration ownership, government ownership, family ownership and audit committee size on risk disclosure quality.

Originality/value

Using a comprehensive set of corporate governance mechanisms and a new measure for risk disclosure quality in Tunisia, the authors provide the first empirical evidence on the impact of corporate governance mechanisms on risk disclosure quality in a developing country. The study has theoretical and practical implications for both developed and developing countries.

Details

Journal of Accounting in Emerging Economies, vol. 9 no. 4
Type: Research Article
ISSN: 2042-1168

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Article
Publication date: 5 October 2021

Navendu Prakash, Shveta Singh and Seema Sharma

Against the backdrop of an Indian banking sector that finds itself entangled in the triple deadlock of increasing competition, technological changes and strict regulatory…

Abstract

Purpose

Against the backdrop of an Indian banking sector that finds itself entangled in the triple deadlock of increasing competition, technological changes and strict regulatory compliance, the study aims to examine the need for reinforcing stringent corporate and risk governance mechanisms as an instrument for improving efficiency and productivity levels.

Design/methodology/approach

The authors construct three separate indices, namely, supervisory board index, audit index and risk governance index to measure the governance practices of commercial banks. A slacks-based data envelopment analysis technical efficiency (TE) measure, a variable returns to scale cost efficiency model and Malmquist productivity index are employed to determine TE, cost efficiency and productivity change, respectively. A two-step system-generalized method of moments estimation accounts for the dynamic relationship between governance and efficiency.

Findings

The authors show that strict audit and risk governance mechanisms are associated with better efficiency and productivity levels. However, consistent with the free-rider hypothesis, large, independent and diverse boards lead to cost inefficiencies. Strict risk governance structures circumvent the negative effects of high regulatory capital and improve efficiency and total factor productivity. However, friendly boards do not perform efficiently in the presence of regulatory capital, implying that incentives arising from maintaining high levels of equity capital make them more susceptible to risk-taking, and board composition is unable to sidestep this behaviour.

Originality/value

The paper contributes to the literature that explores the linkages between governance, efficiency and productivity. The inferences hold relevance in the post-COVID world, as regulators try to circumvent the additional stress on the banking system by adopting sound corporate and risk governance mechanisms.

Details

Journal of Economic Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 31 August 2010

Elena Demidenko and Patrick McNutt

The purpose of this paper is twofold: first to add to the debate on good governance and ethics of enterprise risk management (ERM) and second to describe an ethical…

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8011

Abstract

Purpose

The purpose of this paper is twofold: first to add to the debate on good governance and ethics of enterprise risk management (ERM) and second to describe an ethical maturity scale based on duty and responsibility for practical implementation to ensure better governance.

Design/methodology/approach

The methodology has centred on risk governance as a way for many organisations to improve their risk management (RM) practices from an ethical perspective based on responsibility and on fulfilling one's duty within the organisation.

Findings

While companies in Australia, for example, are more mature than those in Russia in terms of governance systems life cycle, there are a number of common international challenges in risk governance implementation. These relate to a link between risk framework, enterprise value model and strategic planning; to a definition of risk appetite, the embodiment of RM in organisational culture, internal audit and ERM function, the evolving role of a chief risk officer (CRO) and senior management buy‐in and sponsorship of the integrated ethical RM from a chief executive officer.

Practical implications

ERM – a way for many organisations to improve their RM practices – is a key component of the applied ethics of corporate governance. It has developed into a philosophy to assist organisations with the process of protecting shareholders' value while also increasing the bottom‐line profitability. Effective ERM is based on ethical risk governance. Internal audit needs to be involved in the process of integrating RM and compliance. It should maintain a degree of independence when assisting with ERM establishment. CRO is most effective when reporting to the board.

Originality/value

Global companies are becoming more accountable to multiple stakeholders. It is the adoption of an ethical code to arrest the lack of clarity of roles ascribed to the audit committee and risk committee and management's accountability or lack thereof that remains the challenge across different jurisdictions. In attempting to implement good governance and meet the challenges, the paper introduces an ethical maturity scale as an internal measure that could be embedded in an organisation's strategy.

Details

International Journal of Social Economics, vol. 37 no. 10
Type: Research Article
ISSN: 0306-8293

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Book part
Publication date: 4 May 2021

Anita Meidell and Kjell Ove Røsok

Since the mid-1990s, enterprise risk management (ERM) has proliferated in both the private and public sector as a holistic, enterprise-wide approach to risk management. In…

Abstract

Since the mid-1990s, enterprise risk management (ERM) has proliferated in both the private and public sector as a holistic, enterprise-wide approach to risk management. In this chapter, we begin by exploring the economic, regulatory and professional context of ERM practices in Norway. To gain an understanding of the current state of ERM practices among Norwegian entities, we have conducted a survey among members of the Institute of Internal Auditors (IIA) Norway. Based on the survey data, we go on to analyse the perceived maturity of risk management practices of the surveyed organizations, as well as their integration of risk management with governance mechanisms and accounting practices. Four main findings emerged from the survey. We firstly observed that a majority of the respondents perceived that they had implemented ERM. Secondly, the average maturity of risk management practice is at a medium level, with ambitions to improve it further in the future. We further observed that a majority of the organizations have established risk management governance structures regarding the roles of risk management. However, there is still work to be done in relation to risk management functions in order for them to gain more attention and influence in the organizations. Finally, we find that risk management is more integrated with reporting processes than with strategic and performance planning processes, suggesting a more reactive than proactive approach to managing risks.

Details

Enterprise Risk Management in Europe
Type: Book
ISBN: 978-1-83867-245-4

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Article
Publication date: 9 January 2017

Arash Amoozegar, Kuntara Pukthuanthong and Thomas J. Walker

In most financial institutions, chief risk officers (CROs) and their risk management (RM) staff fulfill a role in managing risk exposures, yet their lack of involvement in…

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1847

Abstract

Purpose

In most financial institutions, chief risk officers (CROs) and their risk management (RM) staff fulfill a role in managing risk exposures, yet their lack of involvement in the governance has been cited as an influential factor that contributed to the financial crisis of 2007-2008. Various legislative and regulatory bodies have pressured financial firms to improve their risk governance structures to better weather potential future crises. Assuming that CROs and risk committees are given sufficient power to influence the corporate governance of financial institutions, can CROs and risk committees protect financial institutions from violating litigable securities law? Can they improve bank performance? The paper aims to discuss these issues.

Design/methodology/approach

The authors employ a principal component analysis to construct a single measure that captures various aspects of RM in a firm. The authors compare the risk governance characteristics of sued firms with their non-sued peers and consider one of the final outcomes of risky behavior: shareholder litigation. The authors compute ROA and buy-and-hold abnormal returns to capture operating and stock performance and examine whether risk governance improves bank performance by reducing litigation risk.

Findings

Proper risk governance reduces a firm’s litigation probability. The addition of the RM factor to models that have been previously proposed in the literature improves the accuracy of those models in identifying companies that are most susceptible to class action lawsuits. Better RM improves the financial and stock price performance of financial institutions.

Research limitations/implications

The data collection is laborious as the information about CRO governance has to be hand-collected from the 10-K report. A broader sample employing, e.g., non-US banks may provide additional insights into the relationship between RM practices, shareholder litigation, and bank performance.

Practical implications

The study shows that a bank’s RM functions play a critical role in improving bank and operating performance and in reducing shareholder litigation. Banks should emphasize the RM function.

Originality/value

This is the first study to examine the mechanism behind the positive association between RM and bank performance. The study shows that better RM improves overall bank performance by decreasing litigation risk.

Details

Managerial Finance, vol. 43 no. 1
Type: Research Article
ISSN: 0307-4358

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Book part
Publication date: 4 May 2021

Cláudia Pinto, Graça Azevedo and Jonas Oliveira

The present chapter tries to assess the state of art of enterprise risk management (ERM) among Portuguese non-financial companies regarding two main aspects: the ERM…

Abstract

The present chapter tries to assess the state of art of enterprise risk management (ERM) among Portuguese non-financial companies regarding two main aspects: the ERM background in Portugal and the level of disclosure of ERM practices by non-financial listed companies. Since the analysis of disclosures is useful to understand the level of evolution and adoption of ERM framework we tried to assess the ERM practices disclosed by 26 Portuguese non-financial listed companies at the Euronext Lisbon Stock Exchange regulated market, during the period of 2006–2016. Main findings indicate that regulation on ERM in Portugal emanates from three main Codes (The Portuguese Companies Code, The Stock Exchange Code, and The Corporate Governance Code). The ERM professionalization in Portugal is its infancy and has been promoted mainly by the Institute of Portuguese Internal Auditors. Moreover, research on topics such as risk reporting and risk management/ERM is very scarce. Overall, findings of prior literature are consistent with results from our exploratory study. We conclude that Portuguese non-financial listed companies still disclose very little information on ERM activities. However, over the period of analysis, the disclosure practices evolved positively. Findings show that ERM disclosure can still be extensively improved in the future.

Details

Enterprise Risk Management in Europe
Type: Book
ISBN: 978-1-83867-245-4

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Article
Publication date: 20 August 2018

Ruchi Agarwal and Sanjay Kallapur

The purpose of this study is to explore the best practices for improving risk culture and defining the role of actors in risk governance.

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1028

Abstract

Purpose

The purpose of this study is to explore the best practices for improving risk culture and defining the role of actors in risk governance.

Design/methodology/approach

This paper presents an exemplar case of a British insurance company by using a qualitative case research approach.

Findings

The case study shows how the company was successful in changing from a compliance-based and defensive risk culture to a cognitive risk culture by using a systems thinking approach. Cognitive risk culture ensures that everybody understands risks and their own roles in risk governance. The change was accomplished by adding an operational layer between the first and second lines of defense and developing tools to better communicate risks throughout the organization.

Practical implications

Practitioners can potentially improve risk governance by using the company’s approach. The UK regulator’s initiative to improve risk culture can potentially be followed by other regulators.

Originality/value

This is among the few studies that describe actual examples of how a company can improve risk culture using the systems approach and how systems thinking simultaneously resolves several other issues such as poor risk reporting and lack of clarity in roles and responsibilities.

Details

The Journal of Risk Finance, vol. 19 no. 4
Type: Research Article
ISSN: 1526-5943

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