Strong Boards, Risk Committee and Bank Performance: Evidence from India and China

Battaglia, Francesca; Gallo, Angela; Graziano, Anna Elvira

doi:10.1007/978-3-642-44955-0_4

“…The coefficient that is associated with natural logarithm of total assets (LNTA) indicates that, if the size increases by 1%, we foresee an increase in liquidity risk by 0.005401. This supports our first hypothesis and is also consistent with the aforementioned theoretical background of larger banks being riskier (Battaglia et al 2014;De Haan and Poghosyan 2012). Moreover, the probability of moral hazard will rise if larger banks increase their lending activity at a lower franchise, whereas holding adequate levels of capital contributes not only to a decrease in liquidity risk but also to a reduction in the incidence of eventual losses.…”

Section: Preliminary Resultssupporting

confidence: 89%

“…It has been found that bigger banks are not riskier (Birindelli et al 2018;Bertay et al 2013;Mercieca et al 2007;Demsetz and Strahan 1997). On the other hand, studies have shown that larger banks are less stable (Battaglia et al 2014;De Haan and Poghosyan 2012). We expect a positive sign for the banking size coefficient, which means that larger banks tend to increase their liquidity risk, thus we posit: Hypothesis 1.…”

Section: Theoretical Backgroundmentioning

confidence: 79%

Liquidity Risk Drivers and Bank Business Models

Galletta

¹

,

Mazzù

²

2019

Risks

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This paper examines the bank liquidity risk while using a maturity mismatch indicator of loans and deposits (LTDm) during a specific period. Core banking activities that are based on the process of maturity transformation are the most exposed to liquidity risk. The financial crisis in 2007–2009 highlighted the importance of liquidity to the functioning of both the financial markets and the banking sector. We investigate how characteristics of a bank, such as size, capital, and business model, are related to liquidity risk, while using a sample of European banks in the period after the financial crisis, from 2011 to 2017. While employing a generalized method of moment two-step estimator, we find that the banking size increases the liquidity risk, whereas capital is not an effective deterrent. Moreover, our findings reveal that, for savings banks, income diversification raises the liquidity risk while investment banks reliant on non-deposit funding decrease the exposure to liquidity risk.

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“…Moreover, the complex nature of risk management, and the skills required to manage risks, does not necessarily match with the skills of AC members. Battaglia et al (2014) and Zaman (2001) assert that because of their lack of expertise and time, ACs do not offer a solution to risk management that is robust enough, considering the fact that ACs are already over-burdened because of additional responsibilities of abiding by the code of CG and regulatory reforms. Based on these lessons, recommendations put forward by Walker (2009), at the request of the Prime Minister of the UK, emphasize the establishment of a board level separate risk committee (RC) in banks and other financial institutions with the responsibility to oversee current and future risks.…”

Section: Cfpmentioning

confidence: 99%

“…Thus, many FIs establish independent risk committees to cover responsibilities such as, suggest risk appetite and risk limits, limit breaks and mitigation procedures, review risk profile and risk monitoring, receive and review risk issues reports, stress test scenarios, and review, update and accept risk policies change (Battaglia et al, 2014;BCBS, 2015;Elamer et al, 2017;Ng et al, 2012). Therefore, RC as internal corporate governance structure can improve and assist the board of directors in managing risks in FIs.…”

Section: Introductionmentioning

confidence: 99%

The impact of risk committee on financial performance of UK financial institutions

Elamer¹,

Benyazid²

2018

IJAF

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Following the recent financial crisis, Walker (2009) recommended that financial institutions should form a separate board level risk committee (RC) to manage various risks and prevent excessive risk taking. This research focuses on investigating how firms with separate risk committees differ from those that do not have one. The main research question we address is whether RCs have a fundamental influence on financial performance. We measure financial performance by ROA and ROE and we control for firm size, liquidity and gearing. Our sample consists of all listed financial institutions in FTSE-100 index from 2010 through 2014. Results indicate a negative relationship between risk committee characteristics (i.e., existence, size, independence, and meeting frequency) and financial performance. The results also indicate that firms without risk committee (RC) performed considerably well than firms with RC. The results are contradictory to Walker's (2009) where RCs are recommended for their ability to mitigate and manage risks more expertly. However, we argue that establish strong RC constrain management ability to make excessive risk taking behaviour which may affect financial performance negatively. We contribute to the current research on the impact of risk committee governance attributes on financial performance after banking and governance reforms.

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“…Thus, many FIs establish independent risk committees to cover responsibilities such as, suggest risk appetite and risk limits, limit breaks and mitigation procedures, review risk profile and risk monitoring, receive and review risk issues reports, stress test scenarios, and review, update and accept risk policies change (Battaglia et al, 2014;BCBS, 2015;Elamer et al, 2017;Ng et al, 2012). Therefore, RC as internal corporate governance structure can improve and assist the board of directors in managing risks in FIs.…”

Section: Introductionmentioning

confidence: 99%

The impact of risk committee on financial performance of UK financial institutions

Elamer

¹

,

Benyazid

²

2018

IJAF

View full text Add to dashboard Cite

Following the recent financial crisis, Walker (2009) recommended that financial institutions should form a separate board level risk committee (RC) to manage various risks and prevent excessive risk taking. This research focuses on investigating how firms with separate risk committees differ from those that do not have one. The main research question we address is whether RCs have a fundamental influence on financial performance. We measure financial performance by ROA and ROE and we control for firm size, liquidity and gearing. Our sample consists of all listed financial institutions in FTSE-100 index from 2010 through 2014. Results indicate a negative relationship between risk committee characteristics (i.e., existence, size, independence, and meeting frequency) and financial performance. The results also indicate that firms without risk committee (RC) performed considerably well than firms with RC. The results are contradictory to Walker's (2009) where RCs are recommended for their ability to mitigate and manage risks more expertly. However, we argue that establish strong RC constrain management ability to make excessive risk taking behaviour which may affect financial performance negatively. We contribute to the current research on the impact of risk committee governance attributes on financial performance after banking and governance reforms.

show abstract

Strong Boards, Risk Committee and Bank Performance: Evidence from India and China

Cited by 20 publications

References 36 publications

Liquidity Risk Drivers and Bank Business Models

Liquidity Risk Drivers and Bank Business Models

The impact of risk committee on financial performance of UK financial institutions

The impact of risk committee on financial performance of UK financial institutions

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