Banking Governance and Risk: The Case of Tunisian Conventional Banks

Issue: 4/2013

Houssem Rachdi

Faculty of Law, Economics and Management of Jendouba, University of Jendouba, Tunisia. rachdih@uvic.ca

Mohamed Ali Trabelsi

High Business School of Tunis, University of Manouba, Tunisia. daly1704@yahoo.fr

Naama Trad

High Business School of Tunis, University of Manouba, Tunisia. tradnaama@yahoo.fr

Banks are in the business of taking risks. The 3 pillars of Basel II capital accord highlight the crucial role of informative risk disclosures in enhancing market discipline. The specific role and responsibilities of the board of directors or supervisory boards in banking institutions continue, however, to fuel debate. Findings of the literature are often inconclusive. The main contribution of this study is examining how board characteristics affect risk in banking industry. We explore this relationship by using many econometric approaches. The empirical analysis based on a sample of 11 Tunisian conventional banks over the period 2001-2011 reports the following results when using GLS RE: small and dual functions boards are associated with more insolvency risk but have no significant effect on credit and global risks. The presence of independent directors within the board generates an increase in global risk but has no significant effect on insolvency and credit risks. A lower CEO ownership has no significant effect with all measures of risks. Finally, banking capitalization is associated with more insolvency risk, and small size banks assume lower credit risk. These findings are performed by using a GMM in system approach.

Pages: 
195–206
DOI: 10.2478/revecp-2013-0009
JEL: G34, G32, G30
Keywords: Governance, GMM system, GLS RE, Board characteristics, Bank risk
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