Abstract:
The global financial crisis of 2007–2008 brought to the fore weaknesses in
corporate governance and the need to strengthen the governance mechanisms
of banks. It is believed excessive risk-taking was a major contributing factor to
the crisis. Risk governance emerged as one mechanism to constrain bank risktaking
behaviour. Studies have since sought to understand the impact of risk
governance on risk-taking and performance. Therefore, the main purpose of
this study is to account for the role of board expertise in examining the impact
of bank risk governance on risk-taking and performance and also ascertain
how institutional quality would influence the risk governance practises of
banks in Sub-Saharan Africa‘s banking sector. Using the two-step system
generalized method of moments and the dynamic panel threshold estimation
techniques, the study found that the relationship between risk governance and
risk-taking is negatively impacted by the board‘s expertise, and the
relationship between risk governance and performance is positively influenced
by the board‘s expertise. This means a more expert board can help reduce risktaking
and improve performance. The study found that better institutional
quality is linked to more effective bank risk governance. Furthermore, there is
a threshold at which institutional quality positively impacts risk governance. It
is recommended that banking sector regulatory institutions and shareholders
ensure board members have the requisite technical expertise. It is also
recommended that governments in Sub-Saharan Africa work to improve the
quality of institutions since that would serve as a catalyst for improved risk
governance in the banking sector.
