Share:


The relationship between the boards characteristics and the risk management of the Romanian banking sector

    Mariana Bunea Affiliation
    ; Vasile Dinu Affiliation

Abstract

The main objective of this research is to analyse the relationship between the board of director’ structure of the banks from the Romanian bank sector, the capital demands and the risk management in what concerns these relationships. Regarding the structure of the board of directors, their size is under the loop, alongside with the education of its members, the gender diversity and the members nationality. The indicators concerning the capital demand that are subject of this research are the solvency and the level of the total own funds of the banks and the ones expressing the risk management are represented by the total exposure of weighted assets according to the risk (RWA), the credit risk exposure, the market risk and the operational risk. The authors have tried to answer the question: Is there or is not a direct relationship between the top of the range board of directors structure and the risk management for the banks from the Romanian bank sector? To answer this question, the used methodology is mainly quantitatively, having as core the deductive statistical analysis, testing and identifying connections from the effect and cause category, considering also the significance level.

Keyword : supervision, risk management, weighted assets according to the risk, corporate governance, financial performance, banking system, gender diversity, size, board

How to Cite
Bunea, M., & Dinu, V. . (2020). The relationship between the boards characteristics and the risk management of the Romanian banking sector . Journal of Business Economics and Management, 21(5), 1248-1268. https://doi.org/10.3846/jbem.2020.12694
Published in Issue
Jul 16, 2020
Abstract Views
208
PDF Downloads
195
Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

References

Abou-El-Sood, H. (2017). Corporate governance structure and capital adequacy: implications to bank risk taking. International Journal of Managerial Finance, 13(2), 165–185. https://doi.org/10.1108/IJMF-04-2016-0078

Acero, I., & Alcade, N. (2012). The effect of the monitoring function and advisory function on board structure. Revista Espanola de Financiacion y Contabilidad, 41(153), 9–38. https://doi.org/10.1080/02102412.2012.10779717

Acharya, V. V., & Richardson, M. (2009a). Causes of the financial crisis. Critical Review, 21(2–3), 195– 210. https://doi.org/10.1080/08913810902952903

Acharya, V. V., & Richardson, M. (2009b). Restoring financial stability: how to repair a failed system. John Wiley & Sons. https://doi.org/10.1002/9781118258163

Acharya, V. V., Schnabl, P., & Suarez, G. (2009). Securitization without risk transfer (Working Paper). New York University Stern School of Business. https://doi.org/10.3386/w15730

Adams, R., & Mehran, H. (2003). Is corporate governance different for bank holding companies? Economic Policy Review, 9, 123–142. https://doi.org/10.2139/ssrn.387561

Aebi, V., Sabato, G., & Schmid, M. (2012). Risk management, corporate governance, and bank performance in the financial crisis. Journal of Banking & Finance, 36(12), 3213–3226. https://doi.org/10.1016/j.jbankfin.2011.10.020

Alexander, K. (2006). Corporate governance and banks: The role of regulation in reducing the principal-agent problem. Journal of Banking Regulation, 7, 17–40. https://doi.org/10.1057/palgrave.jbr.2340003

Almășan, A., Circa, C., Dumitru, M., Gușe, R. G., & Mangiuc, D. M. (2019). Effects of integrated reporting on corporate disclosure practices regarding the capitals and performance. Amfiteatru Economic, 21(52), 572–589. https://doi.org/10.24818/EA/2019/52/572

Avram, V., Calu, D. A., Dumitru, V. F., & Dănescu, T. (2019). The clarity of the information regarding the bioeconomy: an analysis of the reports published by the organizations. Amfiteatru Economic, 21(50), 41–59. https://doi.org/10.24818/EA/2019/50/41

Banham, R. (2000, April). Kit and caboodle: understanding the skepticism about enterprise risk management. CFO Magazine.

Barber, B. M., & Odean, T. (2001). Boys will be boys: Gender, overconfidence, and common stock investment. Quarterly Journal of Economics, 116, 261–292. https://doi.org/10.1162/003355301556400

Barker, V. L., & Mueller, G. C. (2002). CEO characteristic and firm R&D spending. Management Science, 48(1), 782–801. https://doi.org/10.1287/mnsc.48.6.782.187

Basel Committee on Banking Supervision. (2006). Core principles for effective banking supervision. https://www.bis.org/list/bcbs/spp_12/from_01012006/index.htm

Bebchuk, L. A., & Spamann, H. (2010). Regulating bankers’ pay. Georgetown Law Journal, 247. http://georgetownlawjournal.org/files/pdf/98-2/BebchukSpamann.PDF

Belenzon, S., Shamshur, A., & Zarutskie, R. (2019). CEO’s age and the performance of closely held firms. Strategic Management Journal, 40(6), 917–944. https://doi.org/10.1002/smj.3003

Beltratti, A., & Stulz, R. M. (2011). The credit crisis around the globe: Why did some banks perform better? (Charles A. Dice Center Working Paper No. 2010-5; Fisher College of Business Working Paper No. 2010-03-005). https://doi.org/10.2139/ssrn.1572407

Boitan, I., & Niţescu, D. C. (2019). Does corporate governance support efficiency in banking business? Evidence from European Systemic banks. Journal of Economics, Slovak Academy of Sciences, 67(5), 525–549. https://www.sav.sk/journals/uploads/0712105605%2019%20Boitan%20-%20Nitescu%20+SR.pdf

Boone, A., Field, L. C., Karpoff, J. M., & Raheja, C. G. (2007). The determinants of corporate board size and composition: an empirical analysis. Journal of Financial Economics (JFE), 85(1), 66–101. https://doi.org/10.1016/j.jfineco.2006.05.004

Boone, C., Lokshin, B., Guenter, H., & Belderbos, R. (2019). Top management team nationality diversity, corporate entrepreneurship, and innovation in multinational firms. Strategic Management Journal, 40(2), 277–302. https://doi.org/10.1002/smj.2976

Borlea, S., Achim, M. V., & Mare, C. (2017). Board characteristics and firm performances in emerging economies. Lessons from Romania. Economic Research-Ekonomska Istraživanja, 30(1), 55–75. https://doi.org/10.1080/1331677X.2017.1291359

Brancato, C., Tonello, M., Hexter, E., & Newman, K. R. (2009). The role of U.S. corporate boards in enterprise risk management. Paper presented at the Conference Board Research Report No. R-139006-RR. https://doi.org/10.2139/ssrn.941179

Bunea, M. (2014). Basel III impact on Romanian banking system performance. SEA–Practical Application of Science, 2(03), 397–403.

Bunea, M., & Dinu, V. (2019). The BASEL III impact on the Romanian banks’s solvency. Montenegrin Journal of Economics, 15(1), 189–198.

Bunea, M., Dobre, F., Popa, A., & Sahlian, D. (2018). Risk management, corporate governance and financial performance of the banking system in Romania. Proceedings of the International Conference on Business Excellence, 12(1), 182–196. https://doi.org/10.2478/picbe-2018-0018

Bunea, M., Siminica, M., & Turlea, C. (2015). The correlation between external audit and financial performance of banks from Romania. Amfiteatru Economic, 17(9), 1273–1288.

Carter, D. A., Simkins, B. J., & Simpson, W. G. (2003). Corporate governance, board diversity, and firm value. Financial Review, 38, 33–53. https://doi.org/10.1111/1540-6288.00034

Cavaco, S., Challe, E., Crifo, P., Rebérioux, A., & Roudaut, G. (2016). Board independence and operating performance: analysis on (French) company and individual data. Applied Economics, 48(52), 5093–5105. https://doi.org/10.1080/00036846.2016.1170936

Cebenoyan, A. S., & Strahan, P. E. (2001). Risk management, capital structure and lending at banks. https://doi.org/10.2139/ssrn.293378

Crossland, C., & Hambrick, D. C. (2011). Differences in managerial discretion across countries: How nation‐level institutions affect the degree to which CEOs matter. Strategic Management Journal, 32(8), 797–819. https://doi.org/10.1002/smj.913

Cumming, C., & Mirtle, B. (2001). The challenges of risk management in diversified financial institutions. Federal Reserve Bank of New York Economic Policy Review, 7, 1–17.

Diamond, D., & Rajan, R. (2009). Fear of fire sales and the credit freeze (Working Paper). University of Chicago. https://doi.org/10.3386/w14925

Díaz, B., Ramos, R. G., & Baraibar-Díez, E. (2017). Corporate governance in Europe: has the crisis affected corporate governance policies? In Responsible Corporate Governance (pp. 73–96). Springer International Publishing. https://doi.org/10.1007/978-3-319-55206-4_5

Dinu, V., & Bunea, M. (2015). The relationship between the audit committee and the financial performance, the asset quality and the solvency of banks in Romania. Transformations in Business & Economics, 14(2/35), 161–173.

Dinu, V., & Bunea, M. (2018). The impact of the gender diversity on the romanian banking system performance. Transformations in Business & Economics, 17(2/44), 42–59.

Dutta, P., & Bose, S. (2006). Gender diversity in the boardroom and financial performance of commercial banks: evidence from Bangladesh. The Cost and Management, 34(6), 70–74.

Ellul, A., & Yerramilli, V. (2013). Stronger risk controls, lower risk: evidence from U.S. bank holding companies. Journal of Finance, 68(5), 1757–1803. https://doi.org/10.1111/jofi.12057

Erhardt, N. L., Werbel, J. D., & Shrader, C. B. (2003). Board of director diversity and firm financial performance. Corporate Governance: An International Review, 11(2), 102–111. https://doi.org/10.1111/1467-8683.00011

Erkens, D. H., Hung, M., & Matos, P. (2012). Corporate governance in the 2007–2008 financial crisis: Evidence from financial institutions worldwide. Journal of Corporate Finance, 18(2), 389–411. https://doi.org/10.1016/j.jcorpfin.2012.01.005

Fahlenbrach, R., & Stulz, R. (2011). Bank CEO incentives and the credit crisis. Journal of Financial Economics, 99(1), 11–26. https://doi.org/10.1016/j.jfineco.2010.08.010

Farag, H., & Mallin, C. (2017). Board diversity and financial fragility: Evidence from European banks. International Review of Financial Analysis, 49, 98–112. https://doi.org/10.1016/j.irfa.2016.12.002

Garcia-Marco, T., & Robles-Fernandez, M. D. (2008). Risk-taking behaviour and ownership in the banking industry: The Spanish evidence. Journal of Economics and Business, 60(4), 332–354. https://doi.org/10.1016/j.jeconbus.2007.04.008

Gottesman, A. A., & Morey, M. R. (2010). CEO educational background and firm financial performance. Journal of Applied Finance, 20(2). https://ssrn.com/abstract=2693079

Guerrera, F., & Thal-Larsen, P. (2008, June 26). Gone by the board: why the directors of big banks failed to spot credit risks. Financial Times. https://www.ft.com/content/6e66fe18-42e8-11dd-81d0-0000779fd2ac

Guest, P. (2009). The impact of board size on firm value: Evidence from the UK. European Journal of Finance, 15, 385–404. https://doi.org/10.1080/13518470802466121

Hambrick, D. C., & Mason, P. A. (1984). Upper echelons: The organization as a reflection of its top managers. The Academy of Management Review, 9(2), 193–206. https://doi.org/10.2307/258434

Hashagen, J., Harman, N., Conover, M., & Sharma, J. (2009). Risk management in banking: Beyond the credit crisis.Journal of Structured Finance, 15(1), 92–103. https://doi.org/10.3905/JSF.2009.15.1.092

Ioannou, I., & Serafeim, G. (2012). What drives corporate social performance? The role of nation-level institutions. Journal of International Business Studies, 43(9), 834–864. https://doi.org/10.1057/jibs.2012.26

Kirkpatrick, G. (2009). The corporate governance lessons from the financial crisis. OECD Journal: Financial Market Trends, 2009(1), 89–123. https://doi.org/10.1787/fmt-v2009-art3-en

Korent, D., Dunđek, I., & Klačmer Čalopa, M. (2014). Corporate governance practices and firm performance measured by Croatian Corporate Governance Index (CCGI®). Economic Research-Ekonomska Istraživanja, 27(1), 221–231. https://doi.org/10.1080/1331677X.2014.952109

Lehn, K., Patro, S., & Zhao, M. (2009). Determinants of the size and structure of corporate boards: 1935–2000. Financial Management, 38. https://doi.org/10.2139/ssrn.470675

Liang, Q., Xu, P., & Jiraporn, P. (2013). Board characteristics and Chinese bank performance. Journal of Banking & Finance, 37(8), 2953–2968. https://doi.org/10.1016/j.jbankfin.2013.04.018

Lu, J., Ren, L., He, Y., Lin, W., & Streimikis, J. (2019). Linking corporate social responsibility with reputation and brand of the firm. Amfiteatru Economic, 21(51), 442–460. https://doi.org/10.24818/EA/2019/51/422

Macey, J. R., & O’Hara, M. (2003). The corporate governance of banks. Economic Policy Review, 9(1). https://ssrn.com/abstract=795548

Marinova, J., Plantenga, J., & Remery, C. (2016). Gender diversity and firm performance: Evidence from Dutch and Danish boardrooms. The International Journal of Human Resource Management, 27(15), 1777–1790. https://doi.org/10.1080/09585192.2015.1079229

Mateos de Cabo, R., Gimeno, R., & Escot, M. L. (2010). Disentangling discrimination on Spanish boards of directors. Corporate Governance: An International Review, 19(1), 77–95. https://doi.org/10.1111/j.1467-8683.2010.00837.x

Merton, R. (1977). The valuation of american put options. The Journal of Finance, 32(2), 449–462. https://doi.org/10.1111/j.1540-6261.1977.tb03284.x

Miccolis, J., & Shaw, S. (2000). Enterprise risk management: an analytic approach. Tillinghast – Towers Perrin, New York.

Miller, K. D. (1992). A framework for integrated risk management in international business. Journal of International Business Studies, 23, 311–331. https://doi.org/10.1057/palgrave.jibs.8490270

Minton, B. A., Taillard, J., & Rohan, W. G. (2011). Do independence and financial expertise of the board matter for risk taking and performance? (Fisher College of Business Working Paper Series). https://doi.org/10.2139/ssrn.1787126

Mintzberg, H. (2004). Managers not MBAs. A hard look at the soft practice of managing and management development. Berrett-Koehler Publishers. https://www.bkconnection.com/static/Managers-Not-MBAs-EXCERPT.pdf

Mongiardino, A., & Plath, C. (2010). Risk governance at large banks: Have any lessons been learned? Journal of Risk Management in Financial Institutions, 3(2), 116–123.

Murayev, A., Talavera, O., & Wei, C. (2016). Performance effects of appointing other firms’ executive directors to corporate boards: An analysis of UK firms. Review of Quantitative Finance and Accounting, 46, 25–45. https://doi.org/10.1007/s11156-014-0460-6

Negrei, C., & Istudor, N. (2018). Circular economy – between theory and practice. Amfiteatru Economic, 20(48), 498–509. https://doi.org/10.24818/EA/2018/48/498

Niţescu, D. C., & Boitan, I. A. (2017). Guvernanţa şi auditul intern în domeniul bancar. Editura ASE. https://editura.ase.ro/Carte/Guvernanta-si-auditul-intern-in-domeniul-bancar/

Nocco, B. W., & Stulz, R. M. (2006). Enterprise risk management: theory and practice. Journal of Applied Corporate Finance, 18, 8–20. https://doi.org/10.1111/j.1745-6622.2006.00106.x

Pathan, S., & Faff, R. (2013). Does board structure in banks really affect their performance? Journal of Banking & Finance, 37(5), 1573–1589. https://doi.org/10.1016/j.jbankfin.2012.12.016

Pathan, S., & Skully, M. T. (2010). Endogenously structured boards of directors in banks. Journal of Banking and Finance, 34(7), 1590–1606. https://doi.org/10.1016/j.jbankfin.2010.03.006

Raheja, C. G. (2005). Determinants of board size and composition: a theory of corporate boards. Journal of Financial and Quantitative Analysis, 40(2), 283–306. https://doi.org/10.1017/S0022109000002313

Sabato, G. (2010). Financial crisis: where did risk management fail? International Review of Applied Financial Issues and Economics, 2, 12–18. https://doi.org/10.2139/ssrn.1460762

Savoiu, G., Dinu, V., & Tachiciu, L. (2012). Romania foreigen trade in global recession, revealed by the extended method of exchange rate indicators. Amfiteatru Economic, 14(31), 173–194.

Srivastav, A., & Hagendorff, J. (2016). Corporate governance and bank risk-taking. Corporate Governance: An Interntional Review, 24(3), 334–345. https://doi.org/10.1111/corg.12133

Strebel, P. (2011). In touch boards: reaching out to the value critical stakeholders. Corporate Governance, 11(5), 603–610. https://doi.org/10.1108/14720701111177000

Stulz, R. M. (2016). Risk management, governance, culture, and risk taking in banks. Economic Policy Review, 8, 43–60. https://ssrn.com/abstract=2828073

Terjesen, S., Couto, E. B., & Francisco, P. M. (2016). Does the presence of independent and female directors impact firm performance? A multi-country study of board diversity. Journal of Management and Governance, 20(3), 447–483. https://doi.org/10.1007/s10997-014-9307-8

Van Greuning, H., & Brajovic Bratanovic, S. (2003, December). Analyzing and managing banking risk: a framework for assessing corporate governance and financial risk management (2nd ed.). World Bank Publications, The World Bank. https://doi.org/10.1596/0-8213-5418-3

Vătămănescu, E.-M., Alexandru, V.-A., Cristea, G., Radu, L., & Chirica, O. (2018). A demand-side perspective of bioeconomy: the influence of online intellectual capital on consumption. Amfiteatru Economic, 20(49), 536–552. https://doi.org/10.24818/EA/2018/49/536

Vuță, M., Cioacă, S. I., Vuţă, M., & Enciu, A. (2019). An empirical analysis of corporate social responsibility effects on financial performance for Romanian listed companies. Amfiteatru Economic, 21(52), 607–622. https://doi.org/10.24818/EA/2019/52/607

Walker, D. (2009, July 16). A review of corporate governance in UK banks and other financial industry entities. Walker Review.