EXPLORING THE ADOPTION OF RISK GOVERNANCE STRUCTURES WITHIN THE TURKISH BANKING FIELD: AN INSTITUTIONAL THEORY LENS, 2006-2019

Abstract

Purpose- The purpose of this study is to investigate the adoption patterns of transnationally imposed risk governance structures within the Turkish banking field employing an institutional theory perspective. Building on institutional complexity, which stems from the conflict between transnational and national institutional influences, our study examines two different periods where transnational and national institutional arrangements were in relative fit or misfit. Methodology- The methodology of this study includes the analysis of the publicly available panel data of banks. The annual reports of all 15 banks are used to gather the banks’ risk governance, risk management and performance indicators. All the reports are reached from Public Disclosure Platform (www.kap.gov.tr) or the corporate web sites of the banks. Findings- A risk governance index is constructed to measure the varying levels of adoption among the banks, covering the period from 2006 to 2019. According to the findings, the risk governance index may include the dimension of risk committee, the dimension of chief risk officer, the risk appetite framework of the institution, and corporate governance. However, the risk performance of the banks may vary on different indicators. Conclusion- It is uncovered that banks displayed a relatively homogenous adoption pattern during the 2006-2012 period when transnational and national institutional arrangements were in harmony. However, the adoption patterns diverged among banks when national institutional arrangements began to differ from transnational standards starting from 2013. It is also found that the adoption of transnational templates about risk governance did not result in significant performance increases in risk or corporate performance metrics, indicating a ritual adoption behavior by the majority of the banks, which fail or intendedly decline to entrench corresponding practices associated with these templates.

Keywords

• Risk governance
• adoption
• institutional field
• transnational institutions
• banking

References

1. Abid, A., Gull, A. A., Hussain N. and Nguyen, D. K. (2021). Risk governance and bank risk-taking behavior: Evidence from Asian banks. Journal of International Financial Markets, Institutions & Money, 75, 1-19.
2. Aebi, V., Sabato, G. and Schmid M. (2012). Risk management, corporate governance, and bank performance in the financial crisis. Journal of Banking & Finance, 36(12), 3213-3226.
3. Agha, S. Compliance with Basel Norms by Banks of Turkey (2013). Available at SSRN: https://ssrn.com/abstract=2234657 or http://dx.doi.org/10.2139/ssrn.2234657
4. Alshirah, M. H., Rahman, A. A. and Mustapa, I. R. (2020). Board of directors’ characteristics and corporate risk disclosure: The moderating role of family ownership. EuroMed Journal of Business, 15(2), 219-252.
5. Ansari, S. M., Fiss, P. F. and Zajac, E. J. (2010). Made to Fit: How Practices Vary as They Diffuse. Academy of Management Review, 35(1), 67-92.
6. Bakir, C. and Öniş, Z. (2010). The regulatory state and Turkish banking reforms in the age of post‐Washington Consensus. Development and Change, 41(1), 77-106.
7. Beltratti, A. and Stulz, R. M. (2012). The credit crisis around the globe: Why did some banks perform better? Journal of Financial Economics, 105(1), 1-17.
8. Buchholz, L. (2016). What is a Global Field? Theorizing Fields beyond the Nation-State. The Sociological Review, 64(2), 31-60.

9. Busch, A. (2009). Banking regulation and globalization. USA: Oxford University Press.
10. Brancato, C., Tonello, M., Hexter, E. and Newman, K. R. (2006). The role of US corporate boards in enterprise risk management. (No. R-1390-06-RR.). The Conference Board Research Report, Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=941179
11. Cameron, A. and Trivedi, P. (2010). Microeconometrics Using Stata. Texas USA: Stata Press.
12. Chaney, P. Jeter, D. C. and Philipich, K. (2009). Financial Crisis: A Time to Reevaluate Risk Management. Commercial Landing Review, March-April, 3-7.
13. Chen, J., Cheng, C., Ku, C. Y. and Liao W. (2019). Are Banks Improving Risk Governance After the Financial Crisis? Journal of Accounting, Auditing & Finance, 36(3), 1-17.
14. Ciddi, S. (2021). Turkey and the West. In J. Jongerden (Ed). The Routledge Handbook on Contemporary Turkey. (pp. 11-15). Routledge, New York.
15. Corporate Governance Principals for Banks. (2015). Basel Committee on Banking Supervision. Available at: https://www.bis.org/bcbs/publ/d328.pdf
16. Diamond, D. W. and Rajan, R. G. (2009). The credit crisis: conjectures about causes and remedies. American Economic Review, 99(2), 606–610.
17. Dimaggio, P. J. and Powell, W. W. (1983). The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields. American Sociological Review, 48(2), 147-160.
18. Djelic, M.-L. and Quack, S. (2003). Governing globalization? Bringing institutions back in. In M.-L. Djelic & S. Quack (Eds.), Globalization and institutions: Redefining the rules of the economic game (pp.1-14). : Ed ward Elgar, Cheltenhan, UK.
19. Dupire, M. and Slagmulder, R. (2019). Risk governance of financial institutions: The effect of ownership structure and board independence. Financial Research Letters, 28, 227-237.
20. Ellul, A., and Yerramilli, V. (2013). Stronger Risk Controls, Lower Risk: Evidence from U.S. Bank Holding Companies. The Journal of Finance, 68(5), 1757–1803. http://www.jstor.org/stable/42002596
21. Erçek, M. (2014). Explaining adoption of management innovations in less advanced settings: evidence from Turkey. Journal of Business Economics and Management, 15(5), 994-1016.
22. Erkens, D. H., Hung, M. and Matos, P. (2012). Corporate governance in the 2007-2008 financial crisis: Evidence from financial institutions worldwide. Journal of Corporate Finance, 18(2), 389-411.
23. Erin, O., Bamigboye, O. and Arumona, J. (2020). Risk governance and financial performance: an empirical analysis. Business: Theory and Practice, 21(2), 758-768.
24. Erol, C., Baklaci H. F., Aydoğan B. and Tunç G. (2014). Performance comparison of Islamic (participation) banks and commercial banks in Turkish banking sector. EuroMed Journal of Business, 9(2), 114-128.
25. Esen, B. (2021). Competitive authoritarianism in Turkey under the AKP rule. In J. Jongerden (Ed.), The Routledge Handbook on Contemporary Turkey. Routledge, New York.
26. Goldbach, R. (2015). Asymmetric influence in global banking regulation. Review of International Political Economy, 22(6), 1087-1127.
27. Gondo, M. B. and Amis, J. M. (2013). Variations in practice adoption: the roles of conscious reflection and discourse. Academy of Management Review, 38(2), 229-247.
28. Gontarek, W. (2016). Risk governance of financial institutions: The growing importance of risk appetite and culture. Journal of Risk Management in Financial Institutions, 9(2), 120-129.
29. Goodhart, C. (2011). The Basel Commitee on Banking Supervision. Cambridge, UK.
30. Helleiner, E. (2010). What role for the new financial stability board? The politics of international standards after the crisis. Global Policy, 1(3), 282-290.
31. Kafidipe, A., Uwalomwa, U., Dahunsi, O. and Okeme, F. O. (2021). Corporate governance, risk management and financial performance of listed deposit money bank in Nigeria. Cogent Business & Management, 8(1), 1-14.
32. Kamarudin, F., Sufian, F. and Nassir, A. M. (2016). Does country governance foster revenue efficiency of Islamic and conventional banks in GCC countries? EuroMed Journal of Business, 11(2), 181-211.
33. Karyani, E., Dewo, S. A., Santoso, W. and Frensidy, B. (2020). Risk governance and bank profitability in ASEAN-5: a comparative and empirical study. International Journal of Emerging Markets, 15(5), 949-969.
34. Kenis, P., and Knoke, D. (2002). How organizational field networks shape interorganizational tie-formation rates. Academy of Management Review, 27(2), 275-293.
35. Kostova, T. (1999). Transnational transfer of strategic organizational practices: a contextual perspective. Academy of Management Review, 24 (2), 308-324.
36. Kostova, T. and Roth, K. (2002). Adoption of an organizational practice by subsidiaries of multinational corporations: institutional and relational effects. Academy of Management Journal, 45(1), 215-233.
37. Marois, T. and Güngen, A. R. (2019). The Neoliberal Restructuring of Banking in Turkey Since 2001. In G. L. Yalman, T. Marois & A. R. Güngen (Eds). The Political Economy of Financial Transformation in Turkey. (pp. 135-161). Routledge, New York.
38. Minton, B.A., Taillard, J. and Williamson, R. (2014). Financial expertise of the board, risk taking, and performance: evidence from bank holding companies. Journal of Financial and Quantitative Analysis, 49(2), 351-380.
39. Nguyen, Q. K. (2022). Determinants of bank risk governance structure: A cross-country analysis. Research in International Business and Finance, 60, 1-20.
40. Nicolas, M. and Firzli, J. (2011). A Critique of the Basel Committee on Banking Supervision. Paris: Revue Analyse Financière.
41. Öniş, Z. (2009). Beyond the 2001 Financial crisis: the political economy of the new phase of neo-liberal restructuring in Turkey. Review of International Political Economy, 16(3), 409-432.
42. Özen, Ş. and Önder, Ç. (2021). Diffusion of foreign management practices across Turkish business organizations: a contextualized theory. International Studies of Management & Organization, 21(1), 69-92.
43. Raouf, H. and Ahmed, H. (2022). Risk governance and financial stability: a comparative study of conventional and Islamic Banks in the GCC. Global Finance Journal, 52, 166-181.
44. Roman G. (2015). Asymmetric influence in global banking regulation. Review of International Political Economy, 22(6), 1087-1127.
45. Rovik, K. A. (2016). Knowledge transfer as translation: review and elements of an instrumental theory. International Journal of Management Reviews, 18, 290-310.
46. Sabato, G. (2010). Financial crisis: where did risk management fail? International Review of Applied Financial Issues and Economics, 2(2), 315-327.
47. Scott, W. R. (1995). Institutions and Organizations. SAGE, Thousand Oaks, CA.
48. Sheedy, E. and Griffin, B. (2017). Risk governance, structures, culture, and behavior: A view from the inside. Corporate Governance: An International Review, 26(4), 4-22.
49. Sheedy, E. (2016). Risk Governance and Culture. Governance Directions, (February), 19-22.
50. Thematic Review on Risk Governance (2013). Financial Stability Board. Available at: https://www.fsb.org/2013/02/r_130212/
51. Walter, A. (2008). Governing Finance: East Asia’s adoption of international standards. Cornell University Press, New York.
52. Zhang, X., Li, F. and Ortiz J. (2021). Internal risk governance and external capital regulation affecting bank risk-taking and performance: Evidence from P.R. China. International Review of Economics and Finance, 74, 276-292.Surname, Name, (Publication Year). Name of Book. Publishing, Place of Publication, ISBN.