The Influence of Internal Corporate Governance on Bank Credit Risk: An Empirical Analysis for Tunisia

Bank governance has received special attention after the financial crises of 2008 that have occurred. Nevertheless, the literature presents seemingly conflicting evidence on the implications of governance for bank credit risk quality. The purpose of this article is to examine the impact of corporate governance variables of board size, board composition and board gender diversity on credit risk. Panel data regression analysis is applied to a sample of listed banks from the Tunisia during the 2000–2014 period. We improve the robustness of our results by employing four measures of credit risk commonly used in the literature as the dependent variable in our study. Our results show that the higher the number of board members, the lower the quality of credit is and, consequently, the credit risk increases. The concentration of power within the board of directors may increase bank risks when the cumulative functions of CEO and chairman negatively affect the weight of the board and make it less effective. Also, our findings highlight the importance of board independence and the presence of foreign directors in enhancing credit quality. Nevertheless, we document that the NPLs ratio increases and NPL coverage ratio decreases in the presence of state directors. Finally, we find evidence that the presence of a woman on board influences credit risk, as it is argued that female directors may differ from male directors with regard to their risk attitude, and this, in turn, may influence board’s monitoring ability and its decision-making process. Therefore, this evidence provides beneficial information for supervising authorities, stakeholders and academics, and banks should take this into account during the composition of their board of directors.