Studies In Risk Governance, Institutional Quality, Risk-Taking And Performance Of Banks In Sub-Saharan Africa

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.