IDEAS home Printed from https://ideas.repec.org/a/anr/refeco/v7y2015p279-299.html
   My bibliography  Save this article

The Role of Risk Management in Corporate Governance

Author

Listed:
  • Andrew Ellul

    (Kelley School of Business, Indiana University, Bloomington, Indiana 47405; Centre for Economic Policy Research, London EC1V 3PZ, United Kingdom; Center for Studies of Economics and Finance Department of Economics and Statistics, University of Naples, 80126 Naples, Italy; and European Corporate Governance Institute, 1000 Brussels, Belgium)

Abstract

Failures of banks' governance and risk management functions have been identified as key causes of the 2007–2008 financial crisis. This article reviews the empirical literature that investigates the relationship between governance structures and risk management functions as well as their impact on banks' risk taking and performance. I first discuss risk management's responsibilities and relevance for a value-maximizing bank. The business nature of financial institutions and their funding structure, together with explicit and implicit government guarantees, set them apart from nonfinancial firms. I argue that conventional governance structures alone may be unable to restrain risk taking in banks and thus the presence of a strong and independent risk management function becomes necessary to monitor and control enterprise-wide risk exposures. Recent evidence shows that a strong risk management function, compatible with the appropriate business model and culture, can restrain tail risk exposures at financial institutions and promote long-term value maximization.

Suggested Citation

  • Andrew Ellul, 2015. "The Role of Risk Management in Corporate Governance," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 279-299, December.
    • Handle: RePEc:anr:refeco:v:7:y:2015:p:279-299
    DOI: 10.1146/annurev-financial-111414-125820
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1146/annurev-financial-111414-125820
    Download Restriction: Full text downloads are only available to subscribers. Visit the abstract page for more information.
    File URL: https://libkey.io/10.1146/annurev-financial-111414-125820?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Walter Gontarek & Ruth Bender, 2019. "Examining risk governance practices in global financial institutions: the adoption of risk appetite statements," Journal of Banking Regulation, Palgrave Macmillan, vol. 20(1), pages 74-85, March.
    2. Ritika Gupta & Jacqueline Symss, 2023. "Does Corporate Governance Impact Risk Disclosure? An Empirical Analysis in the Indian Context," Indian Journal of Corporate Governance, , vol. 16(1), pages 9-27, June.
    3. Walter Gontarek & Yacine Belghitar, 2021. "CEO chairman controversy: evidence from the post financial crisis period," Review of Quantitative Finance and Accounting, Springer, vol. 56(2), pages 675-713, February.
    4. Olusola David Fajembola & Nora Azureen Abdul Rahman & Rohani Md-Rus, 2018. "Audit Committee and Banking System Stability: A Conceptual Framework," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 8(6), pages 463-474, June.
    5. Walter Gontarek & Yacine Belghitar, 2018. "Risk governance: Examining its impact upon bank performance and risk‐taking," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 27(5), pages 187-224, December.
    6. Choi, Wonseok & Chung, Chune Young & Wang, Kainan, 2022. "Firm-level political risk and corporate investment," Finance Research Letters, Elsevier, vol. 46(PA).
    7. Maya Finger & Mosi Rosenboim, 2022. "Going ESG: The Economic Value of Adopting an ESG Policy," Sustainability, MDPI, vol. 14(21), pages 1-15, October.
    8. Pankaj Kumar Gupta & Prabhat Mittal, 2020. "Corporate Governance and Risk Bundling: Evidence from Indian Companies," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 6(1), pages 37-52.
    9. Monika Wieczorek-Kosmala & Thomas Henschel, 2022. "The Role of ERM and Corporate Governance in Managing COVID-19 Impacts: SMEs Perspective," JRFM, MDPI, vol. 15(12), pages 1-28, December.
    10. Song, Fenghua & Thakor, Anjan V., 2019. "Bank culture," Journal of Financial Intermediation, Elsevier, vol. 39(C), pages 59-79.
    11. Haar, Lawrence & Gregoriou, Andros, 2021. "Risk management and market conditions," International Review of Financial Analysis, Elsevier, vol. 78(C).
    12. Balasubramanyan, Lakshmi & Daniel, Naveen D. & Haubrich, Joseph G & Naveen, Lalitha, 2024. "Impact of risk oversight functions on bank risk: Evidence from the Dodd-Frank Act," Journal of Banking & Finance, Elsevier, vol. 158(C).

    More about this item

    Keywords

    banking; board expertise; corporate governance; executive compensation; ownership structure; risk management; risk taking;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:anr:refeco:v:7:y:2015:p:279-299. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: http://www.annualreviews.org (email available below). General contact details of provider: http://www.annualreviews.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.