Do risk governance and effective board affect bank performance? Evidence from large banks worldwide

Worldwide, recent corporate financial scandals have raised many questions in terms of risk management and governance of banks. This study examines the impact of risk management-related corporate governance mechanisms on bank performance. Focusing on a sample of large banks, we want to assess the effect of the board of directors and risk management committee features as well as the presence of a Chief Risk Officer (CRO) in the executive board on performance over the period 2006–2017. To examine this relation properly, we employ the system-GMM (Generalized Method of Moments). Results show the importance of the risk management committee in enhancing bank performance. We also find that the presence of a CRO in the bank’s executive board decreases performance and that the lower the number of meetings, women, and independent members, the better the banks’ performance. Most importantly, results show that establishing risk governance will make banks more profitable and sustainable for the future.