Risk governance, ethics codes and bank performance: evidence from large banks worldwide

Abstract

PurposeThis paper has a triple objective: first, to investigate the effect of the adoption of ethics codes on bank performance, second, to analyse the role played by the risk committee (RC) effectiveness in improving bank performance and finally, to assess the indirect role that the implementation of ethics codes exerts on the latter relationship.Design/methodology/approachThe research questions are examined using an international sample of large banks worldwide from 2006 to 2017, applying the dynamic generalized method of moments (GMM) model for panel data.FindingsThe authors find that risk management committee size and independence have a positive and significant effect on bank performance. This highlights the importance of the risk governance function in enhancing bank performance. Most importantly results reveal that although larger RC tends to improve bank performance, this linkage is less strong when adopting ethical codes. They also find that the adoption of ethical codes by banks positively affects the relationship between the functioning of RC and performance.Originality/valueAlthough it is well known that risk management, business ethics and performance are interrelated, there is no research that has dealt with this question.