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

Author

Listed:
  • Ghulam Subhani

    (Iqra University)

  • Shumaila Zeb

    (Shaheed Zulfiqar Ali Bhutto Institute of Science and Technology)

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 result 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.

Suggested Citation

  • Ghulam Subhani & Shumaila Zeb, 2021. "Internal corporate governance and bank risk taking behavior: evidence from developed and emerging economies," Business Review, School of Economics and Social Sciences, IBA Karachi, vol. 16(2), pages 21-43, July-Dece.
    • Handle: RePEc:aho:journl:v:16:y:2021:i:2:p:21-43
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    File URL: https://ir.iba.edu.pk/businessreview/vol16/iss2/2/
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