The recent financial crisis has raised several questions with respect to the corporate governance of financial institutions. This paper investigates whether boards of directors and risk management-related corporate governance mechanisms are associated with a better bank performance during the financial crisis of 2007/2008 for a sample of Chinese and Indian listed banks. We measure bank performance by Tobin's Q, return on asset (ROA), return on equity (ROE) and price–earnings ratio (P/E). In line with the previous literature on US banks, we find the general irrelevance of the standard board's variables when specific variables related to the risk committee are included in the analysis. The positive relationship between the size of the risk committee and ROE and ROA suggests that, over the period 2007–2011, banks with larger risk committee perform better in terms of profitability. However, the market valuation and the expected market growth (Tobin's Q and P/E) are larger for banks with smaller risk committee. In particular, we find that the market valuation is negatively associated with the size of the risk committee and positively associated with the number of the risk committee' meetings. This seems to suggest that the market discounts as favorable the information related to “strong” risk governance.

Risk governance and Asian bank performance: An empirical investigation over the financial crisis

GALLO, ANGELA
2015-01-01

Abstract

The recent financial crisis has raised several questions with respect to the corporate governance of financial institutions. This paper investigates whether boards of directors and risk management-related corporate governance mechanisms are associated with a better bank performance during the financial crisis of 2007/2008 for a sample of Chinese and Indian listed banks. We measure bank performance by Tobin's Q, return on asset (ROA), return on equity (ROE) and price–earnings ratio (P/E). In line with the previous literature on US banks, we find the general irrelevance of the standard board's variables when specific variables related to the risk committee are included in the analysis. The positive relationship between the size of the risk committee and ROE and ROA suggests that, over the period 2007–2011, banks with larger risk committee perform better in terms of profitability. However, the market valuation and the expected market growth (Tobin's Q and P/E) are larger for banks with smaller risk committee. In particular, we find that the market valuation is negatively associated with the size of the risk committee and positively associated with the number of the risk committee' meetings. This seems to suggest that the market discounts as favorable the information related to “strong” risk governance.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11386/4649234
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