THE IMPACT OF CORPORATE GOVERNANCE ON RISK MANAGEMENT: EVIDENCE FROM THE BANKING SECTOR OF PAKISTAN
Keywords:
Risk Management, Corporate Governance, Bank risk, CEO Turnover, Gender diversity, capital risk,, credit risk, liquidity riskAbstract
This study evaluates the impact of corporate governance on bank risks that are capital risk, credit risk, and liquidity risk of twenty commercial banks that are listed on the Pakistan Stock Exchange throughout 2009-2018. Data was collected from Annual reports and accounts of the sampled banks. Random-effect GLS regression technique used to analyze data. The empirical results found that different CG dimensions impact differently on bank risks. In the context of Pakistan, the results reveal that board independence, gender diversity on board and audit committee have a significant effect on bank risks, while board size and CEO turnover have an insignificant effect. As the fundamental purpose of any company is to create and deliver long-term sustainable value in line with its commitments as a responsible corporate citizen, it is recommended that the Bank, therefore, does not view corporate governance as an end in itself but as a critical factor in creating long-term value for all stakeholders. To raise the level of influence of corporate governance on banking risk to a higher level in Pakistan's banking industry. The independence of the audit committee needs to be increased. This allows management to protect the interests of all stakeholders, not just their interests.
References
Abbas, Q. (2021). Corporate Governance, Risk-taking and Efficiency of Islamic Banks: Comparative Study Between Pakistan and Malaysia. SEISENSE Business Review, 1(1), 45-55.
Adams, R. B., & Funk, P. (2012). Beyond the glass ceiling: Does gender matter? Management science, 58(2), 219-235.
Alam, A., & Ali Shah, S. Z. (2013). Corporate governance and its impact on firm risk. International Journal of Management, Economics and Social Sciences, 2(2), 76-98.
Alawaqleh, Q. A., & Almasria, N. A. (2021). The Impact of Audit Committee Performance and Composition on Financial Reporting Quality in Jordan. International Journal of Financial Research, 12(3), 55-69.
Ali, A. (2018). Issue of Income Inequality Under the Perceptive of Macroeconomic Instability: An Empirical Analysis of Pakistan. Pakistan Economic and Social Review, 56(1), 121-155.
Ali, A. and Bibi, C. (2017). Determinants of Social Progress and its Scenarios under the role of Macroeconomic Instability: Empirics from Pakistan. Pakistan Economic and Social Review 55 (2), 505-540.
Ali, A., & Ahmad, K. (2014). The Impact of Socio-Economic Factors on Life Expectancy in Sultanate of Oman: An Empirical Analysis. Middle-East Journal of Scientific Research, 22(2), 218-224.
Ali, A., & Audi, M. (2016). The Impact of Income Inequality, Environmental Degradation and Globalization on Life Expectancy in Pakistan: An Empirical Analysis. International Journal of Economics and Empirical Research, 4 (4), 182-193.
Ali, A., & Audi, M. (2018). Macroeconomic Environment and Taxes Revenues in Pakistan: An Application of ARDL Approach. Bulletin of Business and Economics (BBE), 7(1), 30-39.
Ali, A., & Rehman, H. U. (2015). Macroeconomic instability and its impact on the gross domestic product: an empirical analysis of Pakistan. Pakistan Economic and Social Review, 285-316.
Ali, A., & Şenturk, I. (2019). Justifying the Impact of Economic Deprivation, Maternal Status and Health infrastructure on Under-Five Child Mortality in Pakistan: An Empirical Analysis. Bulletin of Business and Economics, 8(3), 140-154.
Altaf, K., Ayub, H., Shabbir, M. S., & Usman, M. (2021). Do operational risk and corporate governance affect the banking industry of Pakistan? Review of Economics Political Science.
Anderson, R. C., & Reeb, D. M. (2003). Founding-family ownership, corporate diversification, and firm leverage. The Journal of Law and Economics, 46(2), 653-684.
Arshad, S., & Ali, A. (2016). Trade-off between Inflation, Interest and Unemployment Rate of Pakistan: Revisited. Bulletin of Business and Economics (BBE), 5(4), 193-209.
Ashraf, I., & Ali, A. (2018). Socio-Economic Well-Being and Women Status in Pakistan: An Empirical Analysis. Bulletin of Business and Economics (BBE), 7(2), 46-58.
Aslam, E., Haron, R., & Ahmad, S. (2021). A comparative analysis of the performance of Islamic and conventional banks: does corporate governance matter? International Journal of Business Excellence, 24(1), 53-67.
Berger, A. N., Kick, T., & Schaeck, K. (2014). Executive board composition and bank risk taking. Journal of Corporate Finance, 28, 48-65.
Bessis, J. (2011). Risk management in banking: John Wiley & Sons.
Braiotta Jr, L., Gazzaway, R. T., Colson, R., & Ramamoorti, S. (2010). The audit committee handbook: John Wiley & Sons.
Christy, J. A., Matolcsy, Z. P., Wright, A., & Wyatt, A. (2013). Do board characteristics influence the shareholders' assessment of risk for small and large firms? Abacus, 49(2), 161-196.
Elbahar, E. (2016). Corporate governance, risk management, and bank performance in the GCC banking sector. University of Plymouth,
Epure, M., & Lafuente, E. (2015). Monitoring bank performance in the presence of risk. Journal of Productivity Analysis, 44(3), 265-281.
Fatima, S., Mortimer, T., & Bilal, M. (2018). Corporate governance failures and the role of institutional investors in Pakistan: lessons to be learnt from UK. International Journal of Law Management
Green, C. P., & Homroy, S. (2018). Female directors, board committees and firm performance. European Economic Review, 102, 19-38.
Haneef, S., Riaz, T., Ramzan, M., Rana, M. A., Hafiz, M. I., & Karim, Y. (2012). Impact of risk management on non-performing loans and profitability of banking sector of Pakistan. International Journal of Business and Social Science, 3(7).
Jiraporn, P., Kim, J. C., & Kim, Y. S. (2011). Dividend payouts and corporate governance quality: An empirical investigation. Financial Review, 46(2), 251-279.
Khan, S. N., & Ali, E. I. (2018). The Moderating Effect of Intellectual Capital on the Relationship between Corporate Governance and Companies Performance in Pakistan. Journal of Governance Integrity
Khan, S. N., Hussain, R. I., Maqbool, M. Q., Ali, E. I. E., & Numan, M. (2019). The mediating role of innovation between corporate governance and organizational performance: Moderating role of innovative culture in Pakistan textile sector. Cogent Business Management.
Khan, S. N., Yaseen, M. N., Mustafa, F., & Abbasi, S. (2019). The Interaction Effect of Financial Leverage on the Relationship Between Board Attributes and Firm Performance; Evidence of Non-financial Listed Companies of Pakistan. Journal of Accounting and Finance in Emerging Economies, 5(1), 115-122.
Kirkpatrick, G. (2009). The corporate governance lessons from the financial crisis. OECD Journal: Financial Market Trends, 2009(1), 61-87.
Koerniadi, H., Krishnamurti, C., & Tourani-Rad, A. (2014). Corporate governance and risk-taking in New Zealand. Australian Journal of Management, 39(2), 227-245.
Kurawa, J., & Ishaku, A. (2014). The Effect of Corporate Governance on Dividend Policy of Listed Banks in Nigeria: A Panel Data Analysis. Research Journal of Finance, 2 (8), 1, 12.
Kyere, M., & Ausloos, M. (2021). Corporate governance and firms financial performance in the United Kingdom. International Journal of Finance Economics, 26(2), 1871-1885.
Ltifi, M., & Hichri, A. (2021). The effects of corporate governance on the customer’s recommendations: a study of the banking sector at the time of COVID-19. Journal of Knowledge Management.
Maher, S., & Aquanno, S. (2022). The New Finance Capital: Corporate Governance, Financial Power, and the State. Critical Sociology, 48(1), 55-73.
Mathew, S., Ibrahim, S., & Archbold, S. (2016). Boards attributes that increase firm risk–evidence from the UK. Corporate Governance, 16(2), 233-258.
Mathew, S., Ibrahim, S., & Archbold, S. (2018). Corporate governance and firm risk. Corporate Governance: The international journal of business in society, 18(1), 52-67.
Minton, B. A., Taillard, J., & Williamson, R. (2011). Do independence and financial expertise of the board matter for risk taking and performance? Available at SSRN 1787126.
Munawar, H. S., Mojtahedi, M., Hammad, A. W., Kouzani, A., & Mahmud, M. P. (2022). Disruptive technologies as a solution for disaster risk management: A review. Science of the total environment, 806, 151351.
Nakano, M., & Nguyen, P. (2012). Board Size and Corporate Risk Taking: Further Evidence from J apan. Corporate Governance: An International Review, 20(4), 369-387.
Nakpodia, F., & Olan, F. (2022). Corporate governance reform in Nigeria: upstream and downstream interventions. Corporate Governance: The international journal of business in society.
Nisar, S., Asif, R., & Ali, A. (2021). Testing the Presence of the January Effect in Developed Economies. Journal of Finance and Accounting Research (JFAR), 3(2), 1-16
Pandey, I. (2004). Capital structure, profitability and market structure: Evidence from Malaysia. Asia Pacific Journal of Economics and Business, 8(2), 78.
Pathi, R. (2017). Measuring Liquidity Risk in a Banking Management Framework. ELK Asia Pacific Journal of Finance and Risk Management, 8(2). doi:10.16962/EAPJFRM/issn
Perryman, A. A., Fernando, G. D., & Tripathy, A. (2016). Do gender differences persist? An examination of gender diversity on firm performance, risk, and executive compensation. Journal of Business Research, 69(2), 579-586.
Polinkevych, O., Khovrak, I., Trynchuk, V., Klapkiv, Y., & Volynets, I. (2021). Business risk management in times of crises and pandemics. Montenegrin Journal of Economics, 17(3), 99-110.
Quang Trinh, V. (2022). Corporate Governance in Banking. In Fundamentals of Board Busyness and Corporate Governance (pp. 19-27): Springer.
Raheja, C. G. (2005). Determinants of board size and composition: A theory of corporate boards. Journal of financial and quantitative analysis, 40(2), 283-306.
Rashid, A. (2022). Impacts of Bank-Specific and Macroeconomic Risks on Growth and Stability of Islamic and Conventional Banks: An Empirical Analysis from Pakistan. The Journal of Asian Finance, Economics and Business, 9(2), 1-14.
Saeed, M. B., & Saeed, S. K. (2018). Corporate Governance and Accounting Conservatism: Moderating role of Audit Quality and Disclosure Quality. Business and Economic Review, 10(2), 123-150.
Sajid, A. & Ali, A. (2018). Inclusive Growth and Macroeconomic Situations in South Asia: An Empirical Analysis. Bulletin of Business and Economics (BBE), 7(3), 97-109.
Şentürk, İ., & Ali, A. (2021). Socioeconomic Determinants of Gender Specific Life Expectancy in Turkey: A Time Series Analysis. Sosyoekonomi, 29(49), 85-111.
Sun, J., & Liu, G. (2014). Audit committees’ oversight of bank risk-taking. Journal of banking & Finance, 40, 376-387.
Syaepullah, R. (2022). The Influence of Financial Ratio and Corporate Governance on Financial Distress in Indonesian Islamic Banking Period 2013–2019. EKONOMIKA SYARIAH: Journal of Economic Studies, 5(2), 81-94.
Tsorhe, J. S., Aboagye, A., & Kyereboah-Coleman, A. (2011). Corporate governance and bank risk management in Ghana. University of Ghana Business School.
Ullah, F., Qayyum, S., Thaheem, M. J., Al-Turjman, F., & Sepasgozar, S. M. (2021). Risk management in sustainable smart cities governance: A TOE framework. Technological Forecasting and Social Change, 167, 120743.
Wheelen, T. L., & Hunger, J. D. (2011). Concepts in strategic management and business policy: Pearson Education India.
Yazid, A. S., Razali, A. R., & Hussin, M. R. (2012). Determinants of enterprise risk management (ERM): A proposed framework for Malaysian public listed companies. International Business Research, 5(1), 80.
