In the aftermath of the GFC, there have been increased efforts by policy makers and professional bodies to improve risk governance mechanism. There has been considerably much regulatory and academic speculation that excessive risk-taking in the financial sector played a critical role in the GFC. Consequently, recommendations have been made in several policy documents for an overarching risk management framework, highlighting the need for banks to implement a risk committee. However, the issue now, is how to govern risks in a structural mechanism. Another dubious issue is how to integrate these risks into a message for senior executives.
In our article ‘Do Risk Disclosures Matter for Bank Performance? A Moderating Effect of Risk Committee’ in the ‘Accounting in Europe’ journal, Mosammet Asma Jahan and I examined whether risk disclosure and risk committee are associated with major banks’ performance worldwide. We also test whether the composition of a risk committee moderates (i.e. strengthens or weakens) this relationship.
The findings suggest that the composition of a risk committee moderates the relationship between risk disclosure and bank performance. The results support the contention that risk disclosure and risk committee can be used as a channel to optimise the performance of a bank.This paper advances our understanding about the role of risk committee characteristics on the relationship between risk disclosures and bank performance from both theoretical and empirical perspectives, suggesting risk committee is not a panacea for risk monitoring. However, the existence of a strong risk committee is vital for effective risk governance.
Link to publication in Accounting in Europe: https://www.tandfonline.com/doi/abs/10.1080/17449480.2021.1942095