Does disclosure of internal control system of credit risk improve banks’ performance? Evidence from Tunisian listed banks

Moufida Ben Saâda () and Yosra Gafsi
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Moufida Ben Saâda: Department of Accounting, Finance and Management, High Institute of Computer Science and Management of Kairouan, Road Khemais El Alouini, 3100 Kairouan, Tunisia
Yosra Gafsi: Faculty of Economics and Management of Sfax, Tunisia

International Journal of Financial Engineering (IJFE), 2019, vol. 06, issue 04, 1-27

Abstract: This paper proposes a measure of disclosure of internal control of credit risk and explores the extent to which this disclosure improves the performance of Tunisian listed banks. We use a self-constructed disclosure index from content analysis. From regressing panel data applied on a sample of 11 listed Tunisian banks during the period from 2007 to 2017, we find that disclosure of Internal Control System of Credit Risk (DICSCR) improves the performance of banks through the implementation of methods and procedures for controlling credit risk. Moreover, the results show that the interactions between DICSCR and the audit committee, the risk committee, and the internal auditor enhance the performance of the banks. Constructing a measure of disclosure inherent to the internal control system of credit risk allows investors and depositors to make relevant decisions, leads to better understanding the level of risk when controlling the bank by internal auditors and external auditors as well. It provides the Central Bank with a useful tool for evaluating the credit risk of the banks.

Keywords: Board composition; credit risk; nonperforming loans; internal governance mechanism; banks’ performance; panel data (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1142/S2424786319500312

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