Risk Management Committee Research Articles

Disclosures in integrated reporting in Indonesia: Do corporate governance and ownership structures matter?

This study aims to analyze the impact of corporate governance and ownership structure on implementing elements of integrated reporting (IR) in the annual reports and sustainability reports of firms in Indonesia. This study includes corporate governance elements such as the size of the board of directors, the independence of the board of commissioners and the presence of audit and risk management committees. Meanwhile, the ownership structures examined in this study are institutional ownership and managerial ownership. The data were obtained through the content analysis of firms’ annual and sustainability reports. This research uses secondary data from the firms' websites and the Indonesia Stock Exchange (IDX) website. The data were then analyzed further using multiple regression analysis. The results show that only the risk management committee positively affects IR disclosure. At the same time, other independent variables do not affect IR disclosure. All control variables positively affect IR disclosure. This study adds to the literature by demonstrating that the risk management committee, firm size, profitability and leverage influence the extent of integrated reporting disclosure. This research contributes to corporations by illustrating that a risk management committee can enhance the importance of IR disclosure in Indonesia.

KOMITE MANAJEMEN RISIKO, EKSTERNAL TATA KELOLA DAN KINERJA PERUSAHAAN

Good corporate governance can increase the value of a company by implementing a commitment to achieve predetermined goals. One of these goals is meeting the expectations of investors, shareholders, and other stakeholders to achieve maximum profit. This study aims to provide empirical evidence regarding implementing the Risk Management Committee and its impact on company performance. Organizations, as systems, constantly interact with their environment, which is influenced by individual psychology. The study uses a sample of 100 companies listed on the Indonesia Stock Exchange out of 848 as of March 2023. The Risk Management Committee's characteristics are measured by the team leader's number of members and the leader's family affiliation with the company's management. The level of competitiveness is calculated using the Hirschman-Herfindahl index. Multiple regression tests were conducted to examine these variables. The results show that the number of risk management committees and family affiliations has a negative impact on firm value, while the level of competitiveness has a positive effect. However, only the family affiliation of the chairman of the risk management committee significantly affects firm value. The study's limitation lies in measuring the Risk Management Committee's characteristics, and further research is needed with different measurements. The results of this study can be helpful for investors when making investment decisions and for companies when presenting non-financial information.

Risk management committee and earnings management: evidence from an emerging market

PurposeThis study examines whether the risk management committee (RMC) mitigates earnings management (EM) in Nigeria.Design/methodology/approachThe study used a sample of 365 firm-year observations of Nigerian-listed nonfinancial companies from 2018 to 2022. Driscoll and Kraay’s fixed-effect standard error regression model is used to test the hypotheses.FindingsThe study finds that RMC size, expertise, meeting frequency and membership overlapping with the audit committee have a negative effect on both accrual earnings management (AEM) and real earnings management (REM). While RMC independence is found to have a negative effect on REM. Moreover, additional tests reveal that RMC effectiveness is significantly associated with lower EM practices. Further analysis using the industry level finds that RMC attributes mitigate EM practices in some industries. The results remain after rigorous, robust analysis for endogeneity and alternative regressions.Research limitations/implicationsThis study is limited to a sample of Nigerian-listed nonfinancial service companies for a period of five years, resulting in the non-generalizability of the findings to different contexts as the countries’ internal policies and regulations varied.Practical implicationsThe findings have important implications for regulators, policymakers and investors that a stand-alone RMC can effectively help to evaluate potential risk activities and implement a proper risk management system, thereby mitigating EM practices. The result can help investors, analysts and other stakeholders across the international community in considering RMC information to evaluate potential risk and earnings management practices.Originality/valueFollowing the NCCG 2018 reform in Nigeria that requires listed firms to create a standalone RMC, this study is among the earliest that examines the effect of RMC attributes on EM practices and emerging markets. As such, the findings may draw the attention of regulators and policymakers across the African market and the international community to the monitoring role of RMC attributes in mitigating EM practices.

Does financial expertise influence Islamic bank risk-taking?

PurposeThis study investigated how the financial expertise of the board of directors, risk management committee (RMC), audit committee (AC) and Shariá Supervisory Board (SSB) influences the risk-taking of Islamic banks.Design/methodology/approachThe study utilized unbalanced panel data for a sample of 43 full-fledged Islamic banks from 15 countries over 12 years (2010–2021). We employed feasible generalized least squares (FGLS) and heteroskedastic panels corrected standard errors (HPCSE) regression regressions as the primary estimation methods and used a two-step system generalized method of moments (GMM) estimator for robustness checks.FindingsThe results indicate that board financial expertise decreases insolvency and credit risks. Similarly, AC financial expertise and SSB financial expertise reduce insolvency and portfolio risks but increase credit risk. In contrast, RMC financial expertise raises insolvency risk. The remaining relationships are statistically insignificant.Research limitations/implicationsDue to the lack of disclosure regarding the educational and professional background of the board and committee members in the annual reports of some Islamic banks, this research used a sample of only 43 full-fledged Islamic banks operating in fifteen countries from 2010 to 2021.Practical implicationsThe findings can assist both local and international regulators in revising corporate governance codes and risk management guidelines in such a way as to ensure that the financial experts appointed to the board, AC, RMC and SSB, are capable of controlling excessive risk-taking behavior in Islamic banks.Originality/valueThis study contributes to the literature by providing comprehensive empirical evidence that corporate governance financial expertise influences the risk-taking behavior of Islamic banks.

The Nexus between Corporate Governance and Economic, Social and Environment (ESE) Practices: Bangladeshi Banking Paradox

This study aimed to investigate the relationship between corporate governance and sustainability practices at 45 scheduled commercial banks in Bangladesh. The study specifically focused on the impact of corporate governance on bank sustainability practices, using the Global Reporting Initiative (GRI-4) sustainability guidelines. The resource-based view theory was used to explain the relationship between corporate governance and sustainability practices. Panel data used for this analysis was derived from the annual and sustainability disclosure reports of these banks from 2017 to 2021. This study explores dimensions of corporate governance, including board size, independent board members, CEO duality, gender diversity, audit committees, risk management committees, and audit firm size, highlighting their importance in strategic decision-making. It also explores sustainability practices from a corporate perspective, focusing on economic, social, and environmental performance indicators and emphasizing the importance of strategic resource allocation and disclosure. Four hypotheses were formed, and ordinary least squares (OLS) regression was employed to test the relationship between corporate governance and bank sustainability practices. The statistical results showed that CG has a direct effect on firms overall sustainability as well as social and environmental sustainability practices. It was also seen that the size of the board has a significant effect on the overall sustainability measures (ESE). The study suggests that pro-active measures should be taken to improve sustainability practices in Bangladesh.

The Effect of Gender Diversity and Expertise of Risk Monitoring Committee on Equity Investment Risk in Islamic Banks

The study of risk in Islamic banks emphasizes more on the general risk of Islamic banks, this general risk in Islamic banks arises from transactions unrelated to special transactions of Islamic banks. The profit and loss sharing system implemented by Islamic banks raises equity investment risk (EIR). This study uses the agency theory approach in explaining EIR. In the agency theory approach, the risk monitoring committee has the responsibility of evaluating and monitoring the risk management in Islamic banks. The characteristics of risk monitoring committee members can affect the capability of the risk monitoring committee to provide risk management assessments and policies and can affect the effectiveness of the risk monitoring committee in carrying out its duties and responsibilities. The study population was 109 Islamic banks spread across 18 countries in ASEAN and the Gulf Cooperation Council, where the sample was observed in 2021 during the peak of COVID-19. The results of this study indicate that the gender diversity of the risk management committee and the risk management monitoring committee’s expertise in accounting/risk management have a significant negative effect on equity investment risk.

BOARD STRUCTURE AND ISLAMIC BANK STABILITY: A STANDALONE RISK COMMITTEE MODERATING EFFECT

This study investigates the impact of board attributes on the stability of Islamic banks and whether the presence a standalone risk management committee (SARC) moderates their relation. Applying the feasible generalized least squares (FGLS) regression as well as the two-step system generalized method of moments (GMM) estimator for robustness to a panel sample of 43 Islamic banks across 15 countries over eleven years from 2010 to 2020, we document evidence suggesting that board meetings, board gender diversity and foreign directors do not influence the stability of Islamic banks. Conversely, board members holding doctorate degrees (PhDs) significantly and negatively affect the stability of Islamic banks. In addition, the presence of SARC significantly improves the stability of Islamic banks. The study further finds that SARC partially and positively moderates the effects of board members with PhDs and foreign directors on the stability of Islamic banks.

The Effect of Corporate Governance Attributes on Risk Management Practices of Nepalese Commercial Banks

The study examines the effect of corporate governance attributes on risk management practices of Nepalese commercial banks. Non-performing loan and operational risk are selected as the dependent variables. The selected independent variables are board size, board diversity, audit committee, risk management committee, board meetings, and leverage. The study is based on secondary data of 15 commercial banks with 105 observations for the period from 2015/16 to 2021/22. The data were collected from Banking and Financial Statistics published by Nepal Rastra Bank, publications and websites of Nepal Rastra Bank (NRB) and annual reports of the selected commercial banks. The correlation coefficients and regression models are estimated to test the significance and importance of corporate governance on the risk management practices of Nepalese commercial banks. The study showed that risk management committee has a negative impact on non-performing loan and operational risk. It implies that increase in number of directors in risk management committee leads to decrease in non-performing loan and operational risk. Similarly, audit committee size has a negative impact on non-performing loan and operational risk. It implies that increase in audit committee size leads to decrease in non-performing loan and operational risk. However, leverage ratio has a positive impact on operational risk. It means that increase in leverage ratio leads to increase in operational risk. Similarly, board meeting has a positive impact on non-performing loan and operational risk. It shows that increase in board meeting leads to increase in non-performing loan and operational risk. Similarly, board diversity has a positive impact on non-performing loan and operational risk. It implies that increase in female board directors leads to increase in non-performing loan and operational risk.

The moderating effect of risk management committee on board diversity and firm value

This paper attempts to deepen a better understanding of role risk management committee in mediate board diversity to firm value. Board diversity is proxied with gender of the board of directors, age of the board of directors, and setting behind board of director education. The firm value proxied with ratio Tobin's Q and the risk committee be measured with variable dummy. Type study This is study quantitative with population that is firm manufacturers registered with ISSI for the 2020-2022 period, total sample a total of 69 samples from 23 company data with method purposive sampling. Method data analysis using technique panel data regression with SPSS software version 25. Research results show age of the board of directors influential positive significant to firm value, meanwhile board of director gender and setting behind education no influential to firm value. Variable risk management committee no capable moderate influence gender of the board of directors, age of the board of directors, and setting behind education of the board of directors to firm value.

Enhancing Operational Risk Management in the Mauritian Banking Sector: A Structured Approach

The purpose of this study aims to improve risk control, mitigation, and interbank risk comparison by advocating for Mauritian banks to adopt a standardised operational risk definition. The study suggests improving operational risk reduction or hedging, encouraging openness in risk management capabilities, and standardising risk assessment methods in accordance with Bank of Mauritius requirements. The study also recommends that banks create operational risk management committees to supervise risk control and mitigation initiatives. These committees should be composed of experienced personnel who are well-versed in the consequences of operational risk in the banking industry. Using a mixed-method approach, insights are obtained from various banks operating in Mauritius, with data acquired from a substantial sample of 150 participants. Targeting Mauritian bankers, questionnaires were distributed across reputable banks, and data were meticulously collected and analysed. The findings highlight contemporary concerns regarding economic well-being and the security of assets held by banks. It is recommended to implement changes on a modest scale initially, subject to close monitoring over a specified period, with the possibility of gradual expansion if successful outcomes ensue. In conclusion, this research is significant due to the limited exploration into operational risk management within the Mauritian context.

Does the Effectiveness of Risk Management Committee Mitigate Earnings Management Practices?

Recently, there has been a lot of debate on the issues of earnings management practices. Most of these arguments have been confirmed by past studies in developed economies, where their regulations and institutional settings of corporate governance varied from those of emerging markets. Accordingly, corporate governance best practice has been considered an effective monitoring mechanism for strengthening the credibility and reliability of financial reporting. This study examines the effectiveness of risk management committee (RMC) attributes in mitigating earnings management (EM) practices in Nigeria. The study used a sample of 365 firm-year observations of listed non-financial companies from 2018 to 2022. Driscoll and Kraay’s fixed effect standard error regression model was used to test the hypotheses. The study finds that RMC size and expertise have a negative effect on both AEM and REM. However, RMC independence is found to negative effect on REM only. Moreover, additional test validates that RMC scores (effectiveness) are significantly associated with lower EM practices. Our results are robust under alternative regression and measurements for endogeneity. The findings provide enormous insight to regulators, policymakers, and investors on the ongoing debate surrounding the effectiveness of the RMC attributes in mitigating EM practices, and the effectiveness of the revised NCCG 2018. Besides, the findings will provide important intuition to shareholders, financial analysts, and academia about the effective role of stand-alone RMC

The Role of Corporate Governance in Enterprise Risk Management (ERM) Disclosure

The purpose of this study is to determine the effect of the existence of the risk management committee, the reputation of the auditor, and the size of the board of commissioners on the disclosure of enterprise risk management (ERM). The existence of the risk management committee is measured by a dummy variable proxy, Which is used to gauge auditor reputation, and the total number of commissioners on the board is used to gauge the board's size. The measurement of ERM disclosure as a dependent variable is measured by disclosure items based on the ERM Framework issued by COSO (2004). Using the purposive sample approach, this study examined a subset of businesses that were listed in the LQ45 Index from 2012 to 2014. The data used is obtained from the annual report listed on the Indonesia Stock Exchange. There were 15 companies during 2012-2014 that met the criteria. The analysis method used is multiple linear regression analysis. The results showed that the existence of the risk management committee and the reputation of the auditor had a significant effect on the disclosure of enterprise risk management, while the size of the board of commissioners did not have a significant effect on the disclosure of enterprise risk management.

Navigating the Financial Stability: Unraveling Impact of Risk Management Committees with Moderation of Firm Size in the Pakistan Business Landscape

Navigating the Financial Stability: Unraveling Impact of Risk Management Committees with Moderation of Firm Size in the Pakistan Business Landscape

Board committees as catalysts: Divulging the impact of nomination and risk management on corporate eco‐innovation and carbon performance

AbstractDrawing on a theoretical integration perspective, this research responds to the latest calls in sustainability accounting by comprehensively exploring the moderating roles of two board sub‐committees: the nomination committee and the risk management committee, in the relationship between corporate eco‐innovation and carbon performance. This study contributes to the current literature in sustainability accounting by utilizing panel data from non‐financial listed firms on the Australian Securities Exchange (ASX) for the period spanning from 2011 to 2022. To mitigate potential endogeneity bias, various econometric techniques, including instrumental variable modeling, were employed. The robust findings confirm a positive and statistically significant relationship between eco‐innovation and carbon emissions reduction. Moreover, both the nomination committee and the risk management committee emerge as significant moderators of this relationship. These empirical findings hold valuable practical, theoretical, and policy implications for diverse stakeholders seeking a comprehensive understanding of the role of board sub‐committees as effective monitoring tools that support corporate carbon performance by encouraging firms to actively embrace eco‐innovation practices. As a result, our evidence underscores the significance of giving due attention to board sub‐committees when configuring the board's structure and setting expectations for carbon reduction performance.

Chief risk officer and audit fee: An investigation from financial industries in Indonesia

The appointment of a CRO (Chief Risk Officer) influences the implementation of ERM (Enterprise Risk Management), which reduces risk and lowers audit costs. Financial Services Authority Regulation No.17/2014 in Indonesia requires companies to have an RMC (Risk Management Committee), which is different from a CRO equivalent to a C-Level. This study examines the impact of a CRO on external audit costs. The data consists of financial companies listed on the Indonesia Stock Exchange (IDX) from 2011 to 2020. The results show that companies using a CRO have lower risk, thereby reducing audit costs. Additionally, the expertise of a CRO also impacts a higher ERM, which in turn affects the reduction of audit costs. This study contributes to the practical world by supporting the appointment of a CRO to reduce company risk. Thus, the company can deliver better performance.

Examining the Influence of Risk Management Committee Dynamics on Financial Performance: A Case Study of Listed Insurance Companies in Nigeria

The Nigerian insurance industry has experienced substantial growth due to factors like increased awareness, regulatory reforms, and technological advancements. This research aimed to explore how the composition, structure, and activities of risk management committees influence key financial performance metrics, focusing on return on assets (ROA). Data from annual reports and audited financial statements of selected insurance companies listed on the Nigerian Exchange Group from 2013 to 2022 were analyzed using both descriptive and inferential statistics. The study revealed that risk management committee size and meeting frequency positively impact financial performance, suggesting that larger committees and more frequent meetings correlate with better financial outcomes. However, factors like committee independence and gender diversity had insignificant effects on financial performance. In conclusion, the presence and effectiveness of risk management committees significantly affect the financial performance of listed insurance companies in Nigeria. The study recommends that insurance companies prioritize diverse committee compositions to benefit from a wider range of expertise and perspectives.

Risk Management practices and potential fraudulent financial reporting: evidence from Malaysia

PurposeThis paper investigates the relationship between risk management practices and potential fraudulent financial reporting in Malaysia by considering recent regulatory reforms of the Malaysian government on risk management practices.Design/methodology/approachThe sample of this study was based on 257 firm-year observations during the 2012–2017 period. This study employed panel-least square regressions with period fixed effects.FindingsThis study found a significant association between risk management activities in the disclosure and potential fraudulent financial reporting. Nevertheless, this study found there is insignificant effect of the risk-management committee in reducing potential of fraudulent financial reporting.Originality/valueThis study is a pioneer research that relates firms’ risk management practices with potential fraudulent financial reporting measured by F-score. Thus, this study provides an insight to regulators on the extent of risk-management practices in deterring potential fraudulent financial reporting which can be used as an input for greater enforcement of risk-management regulations.

Enterprise risk management in the insurance industry: Trends and future directions

The research aims to describe the state of enterprise risk management (ERM) in the insurance sector. It highlights emerging trends in the application of risk management in the insurance sector and thereby reports the prominent research gaps and new avenues for research in ERM. The research adopts a systematic literature review (SLR) approach, using 187 research papers spanning 44 years (1977–2021). The paper identifies the fact that most ERM and insurance sector research is performed in North America and Europe, while developing economies in Asia and Africa lag. The paper establishes a three-way relationship between ERM, risk management (RM) and risk-based capital (RBC) where RM is a subset of ERM and RBC is a driver of ERM. The research shows that very few studies are conducted on risk culture, three lines of defence and the role of chief risk officers. The determinants of ERM identified are board, firm size, audit and risk management committee and corporate governance. The determinants identified for firm value are return on assets, return on equity, profit, Tobin's Q, among others. This research provides a way for academicians, practitioners and policy makers to design effective strategies for implementing ERM in organisations.

DO CHARACTERISTICS OF BOARDS AND SUBCOMMITTEES AFFECT CORPORATE SUSTAINABILITY?

Purpose: This paper explores the level of corporate sustainability in large listed companies in India. It also aims to identify the importance of the board and its subcommittees in improving corporate sustainability. Methodology: This study employs an ordered probit model in a panel data framework. Findings: The study provides evidence of the importance of independence and gender diversity of the board of directors and its committees in the context of corporate sustainability. It also evaluates whether the insights of key theories in corporate finance (like agency theory and stakeholder theory) are applicable in the context of corporate sustainability. Specific characteristics like the independence and gender diversity of the board, and its subcommittees (namely the audit committee, risk management committee and corporate social responsibility committee) were found to impact corporate sustainability. Originality: This is the first study to identify the impact of characteristics of various subcommittees on corporate sustainability. This is also the first study to highlight the significance of a risk management committee in maintaining corporate sustainability. This study would be beneficial for researchers, practitioners and policymakers in the area of corporate sustainability.

Founder ownership concentration and risk disclosures: an emerging economy view

PurposeThis paper examines the impact of founder ownership concentration (FOC) on risk disclosures. It further investigates the moderating role of risk governance in the association between FOC and risk disclosures.Design/methodology/approachWe use data from the top 200 Indian listed firms as our sample and rely on ordinary least squares (OLS) for our results. In addition, we use the propensity score matching, Heckman selection model and instrumental variable estimates for robustness checks.FindingsWe find that FOC decreases the risk disclosures. However, the effectiveness of risk management committee composition (risk governance) mitigates the negative influence of FOC on risk disclosures.Research limitations/implicationsThe paper is built on the agency theory. Based on the agency theory, the ownership concentration has two implications: first, it reduces the conflicts between managers and shareholders. Here, the managers act in favour of shareholders and therefore, brings more risk disclosers. Second, it invites conflicts between controlling and minority shareholders. The study is, therefore, interesting to see the cost and benefits of FOC on risk disclosures.Practical implicationsThe study has practical implications for the regulatory bodies to encourage risk disclosures and benefit the outsiders of the firm. It also has implications for the companies to see the benefits of risk management committee as improved risk governance.Originality/valueIt contributes to the literature of risk disclosures and risk governance in emerging economies. It is the first study to investigate the role of risk governance in mitigating the adverse effects of founder’s ownership on risk disclosures in developing economies. It also contributes to the theory of agency cost and information asymmetry.