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THE IMPACT OF CORPORATE GOVERNANCE MECHANISMS ON RISK MANAGEMENT: EVIDENCE FROM COMMERCIAL BANKS IN ETHIOPIA

Yıl 2014, Cilt: 1 Sayı: 2, 1 - 21, 16.07.2014

Öz

The risk positions of Ethiopian banks have been under tension since 2007 as per the National Bank of Ethiopia report (2009). However, existing theory on the impact of corporate governance mechanisms on bank risk-taking still remains limited and the evidence is conflicting. Most studies concentrate on US and European banks, while empirical evidence has remained scarce for Ethiopian banks. Added to that, to my knowledge, there are almost no papers on this subject for commercial banks in Ethiopia. Thus, the main contribution of this study is to shed some light on the impact of corporate governance mechanisms on bank risk-taking and analyze its relationship with credit and liquidity risks in Ethiopian commercial banks. This paper focuses on commercial banks as they constitute an important segment of the Ethiopian banking sector. I employed a panel multiple regression model in which the relationships between credit &liquidity risk with corporate governance mechanism variables are modeled. Ordinary least squares with random effects & pooled OLS estimation procedure are applied to a panel data set of 9 Ethiopian banks over the period 2005 through 2011. Based on the results central bank regulation negatively affects both measures of risks but management efficiency found to have positive impact on both risks. Depositors’ influence has negative and significant impact on liquidity risk but positive and does not impact credit risk. Board meeting frequency has negative impact on both measures of risks. Regarding bank size and inflation both have significant impact on credit risk with a negative and positive coefficients respectively, but insignificant for liquidity risk. Based on independent samples T test results, the study revealed no evidence about the difference on risk management between government and private banks using liquidity risk. With respect to credit risk the result confirmed the belief that private banks manage well credit risk than government-owned banks. Generally, the result is similar to earlier studies (Jensen, 1993 and Greuning and Bratanovic, 2004) that corporate governance has an impact on bank risk management.

Kaynakça

  • Access Capital Research. 2010. Banking Sector Review, Viewed on March 10, 2013 http://www.accesscapitalsc.com/downloads
  • Aboagye, A. Q and J. Otieku. 2010. Are Ghanaian MFIs’ Performance Associated with Corporate Governance? Corporate Governance, vol 10, no.3, 307-320
  • Ahmad, N.,& Ariff, M. 2007. Multi country study of bank credit risk determinants. International journal of banking and finance, 5(1).
  • Adams, R.B., & Mehran H. 2003. Board structure and banking firm performance and the bank holding company organizational form. Working Papers of Federal Reserve Bank of Chicago, 408-422.
  • Alemayehu G. 2008. The Road to Public Sector Led Economic Growth. Private Sector Development Hub/Addis ababa Chamber of Commerce & Sectoral Association, 2009.
  • Ali, K.,Akhtar, M., & Sadaqat, S. 2011. Financial and Non-Financial Business Risk PerspectiveEmpirical Evidence From Commercial Banks. Euro Journal Publishing. http://www.eurojournals.com/MEFE.htm
  • Altunbas , Y., Evans, L., Molyneux, P. 2001. Bank Ownership and Efficiency. Journal of Money, Credit and Banking, 33, 926-954.
  • Basel Committee on Banking Supervision. 1997. Core Principles for Effective Banking Supervision. Bank for International Settlements.
  • Barth, J. R., Nolle, D. E., Phumiwasana, T., and Yago, G. 2003. A Cross-Country Analysis of the Bank Supervisory Framework and Bank Performance. Financial Markets, Institutions &Instruments, Vol. 12, 67-120.
  • Becht, M., Bolton, P. and Röell, A. 2002. Corporate governance and control. National Bureau of Economic Research (NBER) working paper no. 9371, New York.
  • Blanchard, D.,& Dionne G. 2004. Gestion des risques et gouvernance d’entreprise, Assurances et gestion des risqué., 71, 397-406.
  • Bourke, P. 1989. Concentration and Other Determinants of Bank Profitability in Europe, North America and Australia. Journal of Banking and Finance, Vol. 13, 65-79.
  • Cheng, S.,Evans, J.H., & Nagarajan N.J. 2008. Board size and firm performance: the moderating effects of the market for corporate control. Review of Quantitative Financial Accounting, 31, 121-145.
  • Conger, J.A., Finegold, D. and Lawler, E. III. 1998. Appraising boardroom performance. Harvard Business Review, 76 (1), 136- 148.
  • Creswell, J W. 2002. Research design: Qualitative, quantitative, and mixed methods approaches. Sage Publications, New York.
  • Dallas, L. L. 2001. Developments in U.S. boards of directors and the multiple roles of corporate boards. Working Paper, University of San Diego.
  • Demirgüç-Kunt, A., Laeven, L., and Levine, R. 2003. The Impact of Bank Regulations, Concentration, and Institutions on Bank Margins. World Bank Policy Research Working Paper NO. 3030.
  • Fekadu, Petros G. 2010. Control in Ethiopian Share Companies: Legal & Policy implication. Mizan Law Review 4(1), 1-30.
  • Flamini, V., McDonald,C., & Schumacher, L. 2009. The determinants of commercial bank profitability in sub Saharan African countries. IMF working paper, African department.
  • Goodstein, J., Gautam, K. and Boeker, W. 1994. The effect of board size and diversity on strategic change. Strategic Management Journal, 15, 241-50
  • Greunin, H and Bratanovic, S. 2003. Analyzing and Managing Banking Risk: A Framework for assessing Corporate Governance and Financial Risk. The World Bank, USA. Second Edition.
  • -------------------------------.2004. Analyzing Banking Risk: A Framework for assessing Corporate Governance and Risk Management. The World Bank USA. Third Edition.
  • Hess, K., Grimes, A., & Holmes, M. 2009. Credit Losses in Australian Banking. The economic record, 85(270), 331-343
  • Hussein Ahmed T. 2012. Overview of Corporate Governance in Ethiopia: The Role, Composition and Remuneration of Boards of Directors in Share Companies. Mizan Law Review Vol. 6(1).
  • Houssem R. & I.G.B. Ameur. 2011. Board Characteristics, Performance and Risk Taking Behaviour in Tunisian Banks. international journal of business and management, vol 6(6).
  • Iannotta, G., Nocera, G., and Sironi, A. 2007. Ownership Structure, Risk and Performance in the European Banking Industry. Journal of Banking & Finance, Vol. 31, 2127-2149
  • Jackling B. and Johl S. 2009. Board structure and Firm Performance: Evidence from Indian’s Top Companies. Corporate governance: An International Review, 17(4); 492-509
  • Jensen, M.C. 1993. The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems. Journal of Finance, Vol. 48, No. 3, 831- 857
  • Jian Z. & Ken Y. C. 2004. Audit Committee, Board Characteristics and Earnings Management by Commercial Banks.
  • Joan S. T, Anthony Q. Q. Aboagye, and Anthony K-C. 2010. Corporate governance and banking risk management in Ghana
  • Kassim, N M. 2001. Determinants of customer satisfaction and retention in the cellular phone market of Malaysia,‟ PhD Dissertation, Southern Cross University, Lisbon.
  • Kirkpatrick G. 2009. The Corporate Governance Lessons from the Financial Crises. OECD Vol.2009/1.
  • Kiyota, K., Peitsch, B.,and Stern, M. R. 2007. The case for Financial Sector Liberalization in Ethiopia. Discussion Paper No.565, University of Michigan and Yokohama National University
  • Konishi, M. and Yukihiro Y. 2004. Factors Affecting Bank Risk Taking: Evidence from Japan. Journal of Banking and Finance 28, 215-232.
  • Kosmidou, K., Tanna, S., and Pasiouras, F. 2005. Determinants of Profitability of Domestic UK Commercial Banks: Panel Evidence from the Period 1995-2002. Money Macro and Finance (MMF) Research Group Conference.
  • Koul, L 2006. Method of educational research. 5th ed., Vikas publishing House, New Delhi..
  • Macey, Jonathan R., and O’Hara, Maureen. 2006. The Corporate Governance of Banks. Federal Reserve Bank of New York Economic Policy Review, Vol. 9 (1), 2003, 91-107
  • Mishkin, F.S. 1999. Financial Consolidation: Dangers and Opportunities. Journal of Banking and Finance, 23, 675-691.
  • Molyneux, P., and Thornton, J. 1992. Determinants of European Bank Profitability: A Note,” Journal of Banking and Finance, Vol. 16, 1173-1178.
  • National bank of Ethiopia (2003): Asset classification and provisioning Directive No. SSB/43/2003. Viewed on February 25, 2013 http:// www.nbe.gov.et
  • ---------------------------- 2009. Banking industry risk management survey report Viewed on February 25, 2013 http://www.nbe.gov.et
  • Nichols, A., (1967), Property Rights and Behavior: Stock versus mutual savings and Loan Associations: Some Evidence of Differences in Behavior, American Economic Review 57, 337-346.
  • O’Hara, M. 1981. Property Rights and the Financial Firm. Journal of Law and Economics, 24, 317-332.
  • Prowse, S. 1997. Corporate Control in Commercial Banks. Journal of Financial Research, Vol. 20 (4), 509-527.
  • Psaros, J. 2009. Australian Corporate Governance: A Review and Analysis of Key Issues, Pearson Education Australia, Frenchs Forest.
  • R.S. Raghavan. 2003. Risk management in Banks.
  • Salas, V., & Saurina, J. 2002. Credit Risk in Two Institutional Regimes: Spanish Commercial and Savings Banks. Journal of Finance Services Research, 22, 203-224.
  • Sarkar, J. Subrata S. and Sumon K. Bhaumik, 1998. Does ownership always matter? Evidence from the Indian banking industry? Journal of Comparative Economics 26, 262-281.
  • Shen,C.-H., Kuo, C.-J., and Chen, H.-J. 2001. Determinants of Net Interest Margins in Taiwan Banking Industry. Journal of Financial Studies, Vol. 9, 47-83.
  • Simpson, W. G. and Gleason, A. E. 1999. Board Structure, Ownership, and Financial Distress in Banking Firms. International Review of Economics and Finance, Vol. 8(3), 281-292.
  • Shleifer, A., and R.W. Vishny. 1997. A Survey of Corporate Governance. Journal of Finance 52, 737-783.
  • Solomon, J. and Solomon, A. 2004. Corporate Governance & Accountability. John Wiley & Sons Ltd, England.
  • Sumner, S. W. and Webb E. 2005. Does Corporate Governance Determine Bank Loan Portfolio Choice? Journal of the Academy of Business and Economics.
  • Tandelilin, E. Hermeindito, K. Putu Anom, M. and Supriyatna 2007. Corporate Governance, Risk Management Bank Performance: Does Type of Ownership Matter? EADN working paper No. 34,
  • Terry McNulty, Chris Florackis and Phillip O.2012. Corporate Governance and Risk: A Study of Board Structure and Process. The Association of Chartered Certified Accountants, Research report 129.
  • Trochim, G. 1998. Positivism and post-positivism, Viewed on March 10,2013 http://www.trochim.human.cornell.edu.htm
  • Williams, R.J., P.A. Fadil, and R.W. Armstrong. 2005. Top management team tenure and corporate illegal activity: The moderating influence of board size. Journal of Managerial Issues 17, 479-493.
  • Xie,B., W. N. Davidson, and P. DaDalt. 2003. Earnings management and corporate governance: the role of the board and the audit committee. Journal of Corporate Finance 9: 295-316.
  • Yermack, David. 1996. Higher market valuation of companies with a small board of directors. Journal of financial economics, 40(2), 185-212.
Yıl 2014, Cilt: 1 Sayı: 2, 1 - 21, 16.07.2014

Öz

Kaynakça

  • Access Capital Research. 2010. Banking Sector Review, Viewed on March 10, 2013 http://www.accesscapitalsc.com/downloads
  • Aboagye, A. Q and J. Otieku. 2010. Are Ghanaian MFIs’ Performance Associated with Corporate Governance? Corporate Governance, vol 10, no.3, 307-320
  • Ahmad, N.,& Ariff, M. 2007. Multi country study of bank credit risk determinants. International journal of banking and finance, 5(1).
  • Adams, R.B., & Mehran H. 2003. Board structure and banking firm performance and the bank holding company organizational form. Working Papers of Federal Reserve Bank of Chicago, 408-422.
  • Alemayehu G. 2008. The Road to Public Sector Led Economic Growth. Private Sector Development Hub/Addis ababa Chamber of Commerce & Sectoral Association, 2009.
  • Ali, K.,Akhtar, M., & Sadaqat, S. 2011. Financial and Non-Financial Business Risk PerspectiveEmpirical Evidence From Commercial Banks. Euro Journal Publishing. http://www.eurojournals.com/MEFE.htm
  • Altunbas , Y., Evans, L., Molyneux, P. 2001. Bank Ownership and Efficiency. Journal of Money, Credit and Banking, 33, 926-954.
  • Basel Committee on Banking Supervision. 1997. Core Principles for Effective Banking Supervision. Bank for International Settlements.
  • Barth, J. R., Nolle, D. E., Phumiwasana, T., and Yago, G. 2003. A Cross-Country Analysis of the Bank Supervisory Framework and Bank Performance. Financial Markets, Institutions &Instruments, Vol. 12, 67-120.
  • Becht, M., Bolton, P. and Röell, A. 2002. Corporate governance and control. National Bureau of Economic Research (NBER) working paper no. 9371, New York.
  • Blanchard, D.,& Dionne G. 2004. Gestion des risques et gouvernance d’entreprise, Assurances et gestion des risqué., 71, 397-406.
  • Bourke, P. 1989. Concentration and Other Determinants of Bank Profitability in Europe, North America and Australia. Journal of Banking and Finance, Vol. 13, 65-79.
  • Cheng, S.,Evans, J.H., & Nagarajan N.J. 2008. Board size and firm performance: the moderating effects of the market for corporate control. Review of Quantitative Financial Accounting, 31, 121-145.
  • Conger, J.A., Finegold, D. and Lawler, E. III. 1998. Appraising boardroom performance. Harvard Business Review, 76 (1), 136- 148.
  • Creswell, J W. 2002. Research design: Qualitative, quantitative, and mixed methods approaches. Sage Publications, New York.
  • Dallas, L. L. 2001. Developments in U.S. boards of directors and the multiple roles of corporate boards. Working Paper, University of San Diego.
  • Demirgüç-Kunt, A., Laeven, L., and Levine, R. 2003. The Impact of Bank Regulations, Concentration, and Institutions on Bank Margins. World Bank Policy Research Working Paper NO. 3030.
  • Fekadu, Petros G. 2010. Control in Ethiopian Share Companies: Legal & Policy implication. Mizan Law Review 4(1), 1-30.
  • Flamini, V., McDonald,C., & Schumacher, L. 2009. The determinants of commercial bank profitability in sub Saharan African countries. IMF working paper, African department.
  • Goodstein, J., Gautam, K. and Boeker, W. 1994. The effect of board size and diversity on strategic change. Strategic Management Journal, 15, 241-50
  • Greunin, H and Bratanovic, S. 2003. Analyzing and Managing Banking Risk: A Framework for assessing Corporate Governance and Financial Risk. The World Bank, USA. Second Edition.
  • -------------------------------.2004. Analyzing Banking Risk: A Framework for assessing Corporate Governance and Risk Management. The World Bank USA. Third Edition.
  • Hess, K., Grimes, A., & Holmes, M. 2009. Credit Losses in Australian Banking. The economic record, 85(270), 331-343
  • Hussein Ahmed T. 2012. Overview of Corporate Governance in Ethiopia: The Role, Composition and Remuneration of Boards of Directors in Share Companies. Mizan Law Review Vol. 6(1).
  • Houssem R. & I.G.B. Ameur. 2011. Board Characteristics, Performance and Risk Taking Behaviour in Tunisian Banks. international journal of business and management, vol 6(6).
  • Iannotta, G., Nocera, G., and Sironi, A. 2007. Ownership Structure, Risk and Performance in the European Banking Industry. Journal of Banking & Finance, Vol. 31, 2127-2149
  • Jackling B. and Johl S. 2009. Board structure and Firm Performance: Evidence from Indian’s Top Companies. Corporate governance: An International Review, 17(4); 492-509
  • Jensen, M.C. 1993. The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems. Journal of Finance, Vol. 48, No. 3, 831- 857
  • Jian Z. & Ken Y. C. 2004. Audit Committee, Board Characteristics and Earnings Management by Commercial Banks.
  • Joan S. T, Anthony Q. Q. Aboagye, and Anthony K-C. 2010. Corporate governance and banking risk management in Ghana
  • Kassim, N M. 2001. Determinants of customer satisfaction and retention in the cellular phone market of Malaysia,‟ PhD Dissertation, Southern Cross University, Lisbon.
  • Kirkpatrick G. 2009. The Corporate Governance Lessons from the Financial Crises. OECD Vol.2009/1.
  • Kiyota, K., Peitsch, B.,and Stern, M. R. 2007. The case for Financial Sector Liberalization in Ethiopia. Discussion Paper No.565, University of Michigan and Yokohama National University
  • Konishi, M. and Yukihiro Y. 2004. Factors Affecting Bank Risk Taking: Evidence from Japan. Journal of Banking and Finance 28, 215-232.
  • Kosmidou, K., Tanna, S., and Pasiouras, F. 2005. Determinants of Profitability of Domestic UK Commercial Banks: Panel Evidence from the Period 1995-2002. Money Macro and Finance (MMF) Research Group Conference.
  • Koul, L 2006. Method of educational research. 5th ed., Vikas publishing House, New Delhi..
  • Macey, Jonathan R., and O’Hara, Maureen. 2006. The Corporate Governance of Banks. Federal Reserve Bank of New York Economic Policy Review, Vol. 9 (1), 2003, 91-107
  • Mishkin, F.S. 1999. Financial Consolidation: Dangers and Opportunities. Journal of Banking and Finance, 23, 675-691.
  • Molyneux, P., and Thornton, J. 1992. Determinants of European Bank Profitability: A Note,” Journal of Banking and Finance, Vol. 16, 1173-1178.
  • National bank of Ethiopia (2003): Asset classification and provisioning Directive No. SSB/43/2003. Viewed on February 25, 2013 http:// www.nbe.gov.et
  • ---------------------------- 2009. Banking industry risk management survey report Viewed on February 25, 2013 http://www.nbe.gov.et
  • Nichols, A., (1967), Property Rights and Behavior: Stock versus mutual savings and Loan Associations: Some Evidence of Differences in Behavior, American Economic Review 57, 337-346.
  • O’Hara, M. 1981. Property Rights and the Financial Firm. Journal of Law and Economics, 24, 317-332.
  • Prowse, S. 1997. Corporate Control in Commercial Banks. Journal of Financial Research, Vol. 20 (4), 509-527.
  • Psaros, J. 2009. Australian Corporate Governance: A Review and Analysis of Key Issues, Pearson Education Australia, Frenchs Forest.
  • R.S. Raghavan. 2003. Risk management in Banks.
  • Salas, V., & Saurina, J. 2002. Credit Risk in Two Institutional Regimes: Spanish Commercial and Savings Banks. Journal of Finance Services Research, 22, 203-224.
  • Sarkar, J. Subrata S. and Sumon K. Bhaumik, 1998. Does ownership always matter? Evidence from the Indian banking industry? Journal of Comparative Economics 26, 262-281.
  • Shen,C.-H., Kuo, C.-J., and Chen, H.-J. 2001. Determinants of Net Interest Margins in Taiwan Banking Industry. Journal of Financial Studies, Vol. 9, 47-83.
  • Simpson, W. G. and Gleason, A. E. 1999. Board Structure, Ownership, and Financial Distress in Banking Firms. International Review of Economics and Finance, Vol. 8(3), 281-292.
  • Shleifer, A., and R.W. Vishny. 1997. A Survey of Corporate Governance. Journal of Finance 52, 737-783.
  • Solomon, J. and Solomon, A. 2004. Corporate Governance & Accountability. John Wiley & Sons Ltd, England.
  • Sumner, S. W. and Webb E. 2005. Does Corporate Governance Determine Bank Loan Portfolio Choice? Journal of the Academy of Business and Economics.
  • Tandelilin, E. Hermeindito, K. Putu Anom, M. and Supriyatna 2007. Corporate Governance, Risk Management Bank Performance: Does Type of Ownership Matter? EADN working paper No. 34,
  • Terry McNulty, Chris Florackis and Phillip O.2012. Corporate Governance and Risk: A Study of Board Structure and Process. The Association of Chartered Certified Accountants, Research report 129.
  • Trochim, G. 1998. Positivism and post-positivism, Viewed on March 10,2013 http://www.trochim.human.cornell.edu.htm
  • Williams, R.J., P.A. Fadil, and R.W. Armstrong. 2005. Top management team tenure and corporate illegal activity: The moderating influence of board size. Journal of Managerial Issues 17, 479-493.
  • Xie,B., W. N. Davidson, and P. DaDalt. 2003. Earnings management and corporate governance: the role of the board and the audit committee. Journal of Corporate Finance 9: 295-316.
  • Yermack, David. 1996. Higher market valuation of companies with a small board of directors. Journal of financial economics, 40(2), 185-212.
Toplam 59 adet kaynakça vardır.

Ayrıntılar

Birincil Dil İngilizce
Bölüm Makaleler
Yazarlar

Sewale Abate

Girma Zeleke Bu kişi benim

Yayımlanma Tarihi 16 Temmuz 2014
Yayımlandığı Sayı Yıl 2014 Cilt: 1 Sayı: 2

Kaynak Göster

APA Abate, S., & Zeleke, G. (2014). THE IMPACT OF CORPORATE GOVERNANCE MECHANISMS ON RISK MANAGEMENT: EVIDENCE FROM COMMERCIAL BANKS IN ETHIOPIA. Journal of Banking and Financial Research, 1(2), 1-21.