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Cointegration between CEO Power and Bank Risk: the Case of Commercial Banks in Uganda

Author

Listed:
  • Richard Kajumbula

    (Department of Finance, Risk Management and Banking, University of South Africa, Pretoria, South Africa)

  • Patricia Lindelwa Makoni

    (Department of Finance, Risk Management and Banking, University of South Africa, Pretoria, South Africa)

Abstract

This study assesses the cointegrating relationship between CEO power and bank risk. Using a sample of commercial banks drawn from Uganda, we consider the possibility of CEO power and bank risk regaining long-term equilibrium despite short-term disequilibrium. This paper adopts the Autoregressive Distributed Lag (ARDL) to analyse the short and long-run linkages between CEO power and bank risk. The speed of adjustment of the model in the long run was established using the Error Correction Term (ECT). Findings show that CEO power is positively and significantly related to Z-score in the long run, but such a relationship is not significant in the short run. A negative and significant ECT of -0.0258 was established, implying cointegration between CEO power and bank risk. If the model is destabilised and moves away from equilibrium, it will be re-coded back to equilibrium at a speed of approximately 2.58% annually. CEOs, bank managers, employees and policymakers should not expect immediate results regarding expected changes in bank risk. There is a need for persistent innovation, adjustment and observation of decisions and policy actions if bank risk is to be minimised.

Suggested Citation

  • Richard Kajumbula & Patricia Lindelwa Makoni, 2024. "Cointegration between CEO Power and Bank Risk: the Case of Commercial Banks in Uganda," Economic Research Guardian, Weissberg Publishing, vol. 14(2), pages 127-150, December.
    • Handle: RePEc:wei:journl:v:14:y:2024:i:2:p:127-150
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    References listed on IDEAS

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    More about this item

    Keywords

    CEO power; Bank risk; Commercial banks; Cointegration; Uganda;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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