Board Composition and Bank Risk Taking: Empirical Evidence from the Vietnamese Banking Sector

Abstract

Although risk management in banking sector has attracted tremendous concern of both academics and practitioners, surprisingly little attention was paid on the relationship between demographic characteristics of board members and banks’ risk-taking behavior, especially in developing countries. Exploiting the dataset of Vietnamese banks from 2009 to 2016, we found that the introduction of female or foreign board members is likely to reduce banks’ risk taking. However, increasing the percentage of female or foreign board members has no marginal effect on the risk-taking behavior of banks which already had such board members. Further, board age has a positive relationship but board size shows a negative one with banks’ risk taking. Additionally, bank size and foreign ownership are found to be important determinants of banks’ risk-taking behavior in the context of Vietnam, i.e. banks with lower proportion of foreign ownership and larger banks tend to involve in more risky activities.