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The impact of risk committee on financial performance of UK financial institutions

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  • Ahmed A. Elamer
  • Ismail Benyazid

Abstract

Following the recent financial crisis, Walker (2009) recommended that financial institutions should form a separate board level risk committee (RC) to manage various risks and prevent excessive risk taking. This research focuses on investigating how firms with separate risk committees differ from those that do not have one. The main research question we address is whether RCs have a fundamental influence on financial performance. We measure financial performance by ROA and ROE and we control for firm size, liquidity and gearing. Our sample consists of all listed financial institutions in FTSE-100 index from 2010 through 2014. Results indicate a negative relationship between risk committee characteristics (i.e., existence, size, independence, and meeting frequency) and financial performance. The results also indicate that firms without RC performed considerably well than firms with RC. The results are contradictory to Walker's (2009) where RCs are recommended for their ability to mitigate and manage risks more expertly. However, we argue that establishing strong RC constrains management ability to make excessive risk taking behaviour, which may affect financial performance negatively. We contribute to the current research on the impact of risk committee governance attributes on financial performance after banking and governance reforms.

Suggested Citation

  • Ahmed A. Elamer & Ismail Benyazid, 2018. "The impact of risk committee on financial performance of UK financial institutions," International Journal of Accounting and Finance, Inderscience Enterprises Ltd, vol. 8(2), pages 161-180.
    • Handle: RePEc:ids:intjaf:v:8:y:2018:i:2:p:161-180
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    Citations

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    Cited by:

    1. Elamer, Ahmed A. & Ntim, Collins G. & Abdou, Hussein A. & Pyke, Chris, 2020. "Sharia supervisory boards, governance structures and operational risk disclosures: Evidence from Islamic banks in MENA countries," Global Finance Journal, Elsevier, vol. 46(C).
    2. Masturah Malik & Rohami Shafie & Ku Nor Izah Ku Ismail, 2021. "Do risk management committee characteristics influence the market value of firms?," Risk Management, Palgrave Macmillan, vol. 23(1), pages 172-191, June.
    3. Na Xu & Wendong Lv & Junli Wang, 2023. "The Impact of Board Governance on Firm Risk among China’s A-Share Market-Listed Companies from 2010 to 2019," Sustainability, MDPI, vol. 15(5), pages 1-20, February.
    4. Yahaya, Mohammed Baba & Oon, Elaine Yen Nee & Jusoh, Ruzita, 2024. "CEO Duality and Bank Tax Avoidance: The Moderating Role of Risk Committees - An International Evidence," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 74(1), pages 73-104.
    5. Saleh F. A. Khatib & Dewi Fariha Abdullah & Ernie Hendrawaty & Ahmed A. Elamer, 2022. "A bibliometric analysis of cash holdings literature: current status, development, and agenda for future research," Management Review Quarterly, Springer, vol. 72(3), pages 707-744, September.
    6. Ahmed A. Elamer & Collins G. Ntim & Hussein A. Abdou & Alaa Mansour Zalata & Mohamed Elmagrhi, 2019. "The impact of multi-layer governance on bank risk disclosure in emerging markets: the case of Middle East and North Africa," Accounting Forum, Taylor & Francis Journals, vol. 43(2), pages 246-281, April.

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