Market Concentration, Corporate Governance, and Banks Risk: Evidence on Concentration-Fragility and Audit Committee Overconfidence

This research aims to find the determinants of banks risk. We posit that Board Size, Big 4 Auditor, Independent Directors, Audit Committee Size, Audit Committee Expertise, and Market Concentration determine banks risk. The control variables are Capital Adequacy Ratio, Bank Size, and Revenue Diversification (Fee-Based Income). The data were taken from banks listed on Indonesian Stock Exchange from 2016–2022. We used multiple regression conducted against three separate models to test for the robustness. The regression results showed that Board Size, Audit Committee Expertise, Market Concentration, and Bank Size significantly influence banks risk. The more the board member, the more excessive risk-taking will take place. This is because of inefficiency in the supervision that will lead to excessive risk-taking by the management. Audit committee expertise in finance and accounting also encourages more risk-taking. This is due to the confidence instilled by the finance and accounting skills. The market share shows concentration-fragility. The more market shares the bank has, the more it will feel the too-big-to-fail sentiment. Therefore, it will take more risks knowing that it will be bailed out by the depository insurance agency. Lastly, the larger a bank is, the less risk it is likely going to take because it tends to preserve the prestige and good reputation associated with its larger assets.