Corporate Governance, Risk Governance and Performance of Banks: Evidence from Asian Economies

Abstract

Banks are important entities for growth of economy. Their opaque nature of business has focused the need to study their governance system. The aim of this study is to investigate the effect of corporate governance and risk governance on performance and risk of banks during period 2010 2017 for sample of Asian economies banks. The performance of banks is measured by ROA (return on assets), ROE (return on equity) and Tobin’s Q as used in prior studies. Three types of risks are investigated that are default risk, credit risk and liquidity risk. The results show positive relationship of institutional shareholdings and negative relationship of ownership concentration and CEO duality with performance and negative relationship of institutional shareholdings with risk of banks. Also risk governance is not effective in terms of performance but results suggests that small size of risk committee who meets frequently and chief risk officer that repots direct to board is of significant importance for the stability of banks, its credit risk and liquidity risk as well. The results also demonstrate that risk governance and corporate governance is not much effective for risk and performance of state owned banks than private banks. Islamic banks and conventional banks results suggest that risk governance and corporate governance practices impact conventional banks more effectively than Islamic banks. At the end, protection of investor’s right and enforcement of law also shows positive relationship with performance of banks and negatively related to risk than means countries with effective enforcement of law and where investor’s rights are protected, positively impact performance of banks and it decreases risk of banks. With effective protection of investor’s right and enforcement of law in any country, risk governance and corporate governance will have effective impact on performance and risk of banks as well. All these results hold when bank specific variables and country factors are controlled.