Relationship between Corporate Governance and Risk Management

Azam Ahmadyan () and Mehdi Ghasemi Ali Abadi ()
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Azam Ahmadyan: Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran
Mehdi Ghasemi Ali Abadi : Department of Risk, Compliance, and Anti-Money Laundering, Parsian Bank,

Journal of Money and Economy, 2021, vol. 16, issue 4, 447-476

Abstract: Corporate governance of banks is one of the most important structures required by banks to maintain the health and stability of banks, which can play an important role in managing banks' risk. This paper examines the effect of corporate governance on liquidity risk management, credit risk management, and total bank risk management. We used board structure effectiveness, transparency, and responsibility as corporate governance indicators. The financial ratio approach is also used to measure risk management. The period under review was 2006-2018. In addition to corporate governance criteria, other explanatory variables affecting banks' risk management have also been used. This paper used the performing unit root, cointegration, and F-Limmer tests to ensure panel estimation. Given the impact of past banks' risk management on current risk management, this variable has also been modeled as an explanatory variable. For this reason, the GMM method has been used to estimate the models in question. Given the importance of bank size in corporate governance on bank risk management, Banks are divided into large and small groups, so the effect of corporate governance in large and small banks has also been investigated on bank risk management. The results show that compliance with corporate governance criteria positively affects banks' risk management. However, due to weak corporate governance in large banks, corporate governance in large banks hurts bank risk management.

Keywords: Corporate Governance; Risk Management; Bank Size; GMM (search for similar items in EconPapers)
JEL-codes: C23 G21 G32 (search for similar items in EconPapers)
Date: 2021
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