Risk governance, market competition and operational risk disclosure quality: a study of the ASEAN-5 banking sector

Abstract

This paper investigates the impact of risk governance and market competition on banks' operational risk disclosure (ORD) quality (total and voluntary) in the Association of Southeast Asian Nations (ASEAN-5) banking sector. Using 285 firmyear observations encompassing the period 2010-14 for risk governance indexes, we investigate the moderating effects of market competition, relative to total risk governance practices, on banks' ORD quality. The results of our panel data analysis show that there is a substitution effect of competition, which could reduce the adverse consequences of weak risk governance practices. However, governance factors -such as the chief risk officer's (CRO's) role and independence, and the risk communication system -decrease voluntary ORD quality. These findings have implications for the role of the financial regulator in using market competition as an effective mechanism to replace banks' weak risk governance, thus encouraging banks to improve their

Risk governance and regulatory adjustments in the public commercial banks of OECD

“…The PCA methodology in this study not only aligns with the approach taken by Karyani et al (2020) but also extends it by offering unique insights into the role of senior directors in risk governance. While Karyani et al (2020) laid the groundwork for understanding risk governance in the ASEAN-5 banking sector, this study further explores how specific components such as senior director roles uniquely contribute to the dynamics of risk governance in OECD public commercial banks. This distinction highlights the study's contribution to the broader discourse on risk governance, enhancing the understanding of its multifaceted nature in different banking contexts.…”

“…Building on the foundational understanding of risk governance practices highlighted in previous work, such as Karyani et al (2020), this study conducts a PCA to explore the underlying structure and dimensionality of specific risk governance characteristics.…”

“…Risk governance involves the identification, communication, application and supervision of risk within banks (Karyani et al , 2020). This research delves deeply into regulatory compliance theory as a key theoretical underpinning.…”

“…Studies (Minton et al , 2014; Bargeron et al , 2010; Berger et al , 2014; Aebi et al , 2012; Andres and Vallelado, 2008; Caprio and Levine, 2002) highlight the importance of risk governance characteristics, such as the presence of a CRO, CFO and SENIOR, in reducing RAs (Drake et al , 2006; Srivastav and Hagendorff, 2016). These studies emphasize the role of risk governance in enhancing risk management practices and regulatory compliance (Karyani et al , 2020).…”

“…Additional perspectives include frameworks for managing risks, critically examining regulatory measures and their implications for corporate governance and providing a survey of corporate governance mechanisms and their impact on firm performance (Ekawati et al , 2021). Discussions also cover risk governance, democratic participation and accountability in the European banking union, exploring the historical perspective of corporate governance and finance in colonial America and examining the use of market information in prudential bank supervision (Karyani et al , 2020).…”