Corporate Governance and Risk Management in Banking Institutions

Abstract

This study investigates the correlation between corporate governance and risk management in banks operating in the Gulf Cooperation Council (GCC) countries. The objective is to enhance the existing body of knowledge by presenting empirical data from the banking industry in the GCC region. This data examines the relationship between risk management and corporate governance attributes, including role duality, board size, and the proportion of nonexecutives. The hypotheses and proposed model were tested using non-parametric regression, quantile analysis, and panel data analysis on a sample of 900 observations from banks in the Gulf countries. The study utilizes data from financial institutions in the Gulf countries spanning from 2003 to 2012. The findings indicate that having several roles and larger board size are linked to a decrease in risk management. Conversely, the proportion of non-executive members on the board was determined to be negligible. Furthermore, the findings suggest a strong and positive correlation between government ownership and the use of risk management strategies. The findings indicate that Islamic banks have a strong and meaningful correlation with risk management, as measured by the capital adequacy ratio. The findings imply the need for more investigation into the correlation between risk management and alternative ownership structures, such as institutional ownership. Future studies can prioritize the examination of risk management frameworks and procedures specific to Islamic banks, given that these banks possess unique risks.