Internal corporate governance and bank risk taking behavior: evidence from developed and emerging economies

Authors

Ghulam Subhani, Iqra UniversityFollow
Shumaila Zeb, SZABISTFollow

Abstract

The study aims to evaluate the impact of board structure and ownership structure on bank risk taking behavior in developed and emerging countries. To fulfill this objective, the study used annual data of 100 large commercial banks for the period 2006-2017 from twelve countries. Zscore is used as the main proxy of bank risk taking behavior. Internal corporate governance is measured by board size, board independence, CEO power, gender diversity, state ownership and foreign ownership. The study controls the issues of endogeneity by applying a two-step generalized method of moments (GMM) econometric approach. The main findings of the study indicate that banks having a greater board size, a higher portion of independent non-executive directors, and a powerful CEO with chair role duality results in reducing the risk of bankruptcy that helps in achieving greater levels of financial stability in the banking sector. However, banks with increased female directors, higher portion of foreign and state ownership escalates the probability of insolvency risk.

Keywords

Board structure, Ownership structure, Risk, GMM, Endogeneity

DOI

https://doi.org/10.54784/1990-6587.1405

Journal of Economic Literature Subject Codes

C33, G21, G32, G33, G34

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Recommended Citation

Subhani, G., & Zeb, S. (2022). Internal corporate governance and bank risk taking behavior: evidence from developed and emerging economies. Business Review, 16(2), 21-43. Retrieved from https://doi.org/10.54784/1990-6587.1405