Get advanced or retreat: well-informed board and bank risk-taking

Asif Saeed, Komal Kamran, Thanarerk Thanakijsombat and Riadh Manita

Review of Accounting and Finance, 2024, vol. 23, issue 4, 537-555

Abstract: Purpose - This paper aims to examine the relationship between board structure and risk-taking, exploring how this association is influenced by advanced technologies in the banking sector. Design/methodology/approach - This study uses a panel sample of 22 Pakistani banks from 2011 to 2018. To test the authors’ hypothesis, the authors use regression analysis with two-way cluster robust standard errors. Further, the authors also check the robustness of the authors’ findings using alternate proxies of board structure and bank risk-taking behavior. To address endogeneity concerns, the authors use the two-stage least square technique. Findings - In the era of the Fourth Industrial Revolution, Pakistani banks’ digitalization is modeled by the presence of Temenos-T24/Oracle as their core banking system (software providing end-to-end operational integration). Its interactional effect with corporate governance is evaluated to implicate informed risk-taking by the board as a result of improved information access and analysis. The authors find that board size has a positive association with risk-taking, and the use of modern technology reshapes this association in the banking sector. Originality/value - The contribution of this paper is twofold. First, the impact of board structure on bank risk-taking has not been extensively researched in Pakistan – a highly volatile and unpredictable economy. Second, the evaluation of the role of technology on bank risk is being researched for the very first time – a uniqueness of this paper.

Keywords: Banking; Board size; Board structure; Risk-taking; Modern technology; D81; G21; G34 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eme:rafpps:raf-06-2023-0194

DOI: 10.1108/RAF-06-2023-0194

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