THE EFFECT OF THE EXISTENCE OF CHIEF RISK OFFICER (CRO) ON BANK PERFORMANCE

Yıl 2024, Cilt: 8 Sayı: 1, 25 - 37, 28.03.2024

Ayse Nur Gungor Bostan , Aslı Aybars

Öz

Over the past few years, numerous studies have examined how top management affects financial performance. These studies highlight the significance of management teams' characteristics and qualities as key factors influencing firms' financial performance. This study focuses on the growing prevalence of Chief Risk Officers (CROs) in the banking industry. It aims to investigate the impact of CROs on the financial performance of banks in the North American Bank sample. The primary objective of this paper is to address the existing gap in the literature by exploring whether there are performance differences between banks that employ CROs and those that do not. The findings of this study provide evidence of a positive correlation between bank size and the presence of a Chief Risk Officer. However, no significant relationship was found between the existence of a CRO and stock return volatility or bank profitability. It was observed that banks with higher volatility levels tend to hire Chief Risk Officers as part of their management team. Consequently, the results suggest that riskier banks are more inclined to employ Chief Risk Officers compared to their safer counterparts.

Anahtar Kelimeler

Chief risk officer (CRO), performance, bank.

Kaynakça

• Adams, R. B. and Mehran, H. (2012). Bank board structure and performance: evidence for large bank holding companies. Journal of Financial Intermediation, 21 (2): 243–267.
• Banham, R. (2005). Enterprising Views of Risk Management. Articles of Merit Award Program for Distinguished Contribution to Management Accounting, August: 14–21.
• Bailey, C. (2019). The Relationship Between Chief Risk Officer Expertise, ERM Quality, and Firm Performance. Journal of Accounting, Auditing & Finance , 37(1): 1-25.
• Baltagi, B. H. (2001). Econometric analysis of panel data. (2nd ed.). United Kingdom.
• Baxter, R., Bedard, J. C., Hoitash, R. and Yezegel, A. (2013). Enterprise Risk Management Program Quality: Determinants, Value Relevance, and the Financial Crisis. Contemporary Accounting Research, 30(4): 1264-1295.
• Beasley, M., Pagach, D. and Warr, R. (2008). Information Conveyed in Hiring Announcements of Senior Executives Overseeing Enterprise-Wide Risk Management Processes. Journal of Accounting, Auditing and Finance, 23(3): 311-332.
• Colquitt, L. L., Hoyt, R. E. and Lee, R. B. (1999). Integrated Risk Management and The Role of Risk Manager. Risk Management and Insurance Review, 2(3): 43-61.
• Cumming, C. M. and Hirtle, B. J. (2001). The Challenges of Risk Management in Diversified Financial Companies. Economic Policy Review, 7(1): 1-17.
• Deloitte, (2008). Perspectives on ERM and the Risk Intelligent Enterprise. (http://www.ipai.pt/fotos/gca/ surveyerm_pt_1_123.333.8524.pdf).
• Demirgüç-Kunt, A., Detragiache, E. and Merrouche, O. (2013). Bank capital: lessons from the financial crisis. Journal of Money Credit and Banking, 45 (6): 1147–1164.
• Demirgüç-Kunt, A. and Huizinga, H. (2010). Bank activity and funding strategies: the impact on risk and returns. Journal of Financial and Economics, 98 (3): 626–650.
• Fahlenbrach, R. and Stulz, R. M. (2011). Bank CEO incentives and the credit crisis. Journal of Financial Economics, 99(1): 11-26.
• Grace, M. F., Leverty, J. T., Phillips, R. D. and Shimpi, P. (2015). The Value of Investing in Enterprise Risk Management. Journal of Risk and Insurance, 82(2): 289-316.
• Hambrick, D. C. and Mason, P. A. (1984). Upper Echelons: The Organization as a Reflection of Its Top Managers. The Academy of Management Review, 9(2):193-206.
• King, T., Srivastav, A. and Williams, J. (2016). What’s in an education? Implications of CEO education for bank performance. Journal of Corporate Finance, 37(1): 287-308.
• Lam, J. (2001). The CRO Is Here to Stay. Risk Management, 48(4): 16-22.
• Liebenberg, A. P. and Hoyt, R. E. (2003). The Determinants of Enterprise Risk Management: Evidence From the Appointment of Chief Risk Officers. Risk Management and Insurance Review, 6(1): 37-52.
• Mehran, H. (1995). Executive compensation structure, ownership, and firm performance. Journal of Financial Economics, 38(2):163-184.
• Meulbroek, L. K. (2002). Integrated Risk Management for the Firm: A Senior Manager’s Guide. Journal of Applied Corporate Finance, 14(4): 56-70.
• Nocco, B.W. and Stulz, M. (2006). Enterprise risk management: theory and practice. Journal of Applied Corporate Finance,18(4): 8-20.
• Pagach, D. and Warr, R. (2010). The Effects of Enterprise Risk Management on Firm Performance, Social Sciences Research Network. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1155218.
• Pagach, D. and Warr, R. (2011). The Characteristics of Firms That Hire Chief Risk Officers. The Journal of Risk and Insurance, 78(1): 185-211.
• Pernell, K., Jung, J. and Dobbin, F. (2017). The Hazards of Expert Control: Chief Risk Officers and Risky Derivatives. American Social Review, 82(3): 511–541.
• Quon, T. K., Zegnal, D. and Maingot, M. (2012). Enterprise risk management and firm performance. Procedia-Social and Behavioral Sciences, 62: 263-267.
• Smithson, C. and Simkins, B. J. (2005). Does risk management add value? A survey of the evidence. Journal of Applied Corporate Finance, 17(3): 8-17.
• Sterngold, J. (2014). After Crisis, Risk Officers Gain More Clout at Banks, Wall Street Journal, June. Lundqvist, S., A. and Vilhelmsson, A. (2018). Enterprise Risk Management and Default Risk: Evidence from the Banking Industry. Journal of Risk and Insurance, 85(1): 127-157.
• Tatoglu, F. (2021). Panel Veri Ekonometrisi-Stata Uygulamali, Istanbul: Beta Press.
• Westman, H. (2011). The impact of management and board ownership on profitability in banks with different strategy. Journal of Banking and Finance, 35(12): 3300-3318.
• Williamson, O. (1967). Hierarchical control and optimum firm size. Journal of Political Economy, 75(2): 123-138.
• Wooldridge, J. M. (2002). Econometric analysis of cross section and panel data. London: The MIT Press. https://www.philadelphiafed.org/surveys-and-data/regional-economic-analysis/state-coincident-indexes