Corporate governance structures and bank risk taking behaviour: evidence from Africa using income bracket approach

Abstract

The study sought to determine the effect bank level corporate governance have on risk taking behaviour of banks in Africa and its income bracket groupings using a two-step GMM panel dataset of 215 banks from 29 African countries. The results show that while board size and CEO duality significantly reduce risk taking behaviour of banks in Africa, extreme increase in board size increased risk taking behaviour of banks in Africa. Furthermore, the results reveal that the effect of bank level corporate governance structures on bank risk taking behaviour varies greatly across banks in different income brackets in Africa. This implies that the effects of corporate governance structures are shaped by contextual settings and effects. The policy implication from these findings are that bank regulators must institute corporate governance frameworks that help shape risk taking behaviour of banks which will enhance financial institution and sector soundness and stability. Also, bank ownership and management must be careful in the selection and implementation of bank corporate governance structures since not all the corporate governance structures induce the stability of banks given the income bracket a bank finds itself.