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 results 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.
Highlights
Since the start of the 21st century, the accounting scandals of Adelphia, Enron, and WorldCom highlighted the issues of ethics and corporate governance (CG)
The main objective of this study is to evaluate the impact of board structure and ownership structure on bank risk taking behavior in developed and emerging countries
After controlling the problem of endogeneity by using two-step (GMM) econometric approach, we found that banks with a greater board size, higher portion of independent nonexecutive directors, and a powerful CEO with chair role duality decreases the risk of bankruptcy, which, in turn helps in achieving greater levels of financial stability in the banking sector
Summary
Since the start of the 21st century, the accounting scandals of Adelphia, Enron, and WorldCom highlighted the issues of ethics and corporate governance (CG). These scandals caught the attention of researchers and policymakers in the field of CG (Darrat et al 2016). For the first time, the worlds most powerful and largest economy i.e. the USA was the source of global financial turmoil (Ballester et al 2019). These crises urged various governments around the world to intervene and stabilize the whole financial system (Bouzgarrou et al 2018). CG issues are more prominent in emerging countries as they are made of weak institutions (Adegbite 2015)
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