Luận án Cơ chế quản trị và rủi ro ngân hàng ở khu vực ASEAN

MINISTRY OF EDUCATION AND TRAINING OF VIETNAM UNIVERSITY OF ECONOMICS HO CHI MINH CITY NGUYỄN QUANG KHẢI CORPORATE GOVERNANCE AND BANK RISK IN ASEAN COUNTRIES PHD THESIS HO CHI MINH CITY-2022MINISTRY OF EDUCATION AND TRAINING OF VIETNAM UNIVERSITY OF ECONOMICS HO CHI MINH CITY NGUYỄN QUANG KHẢI CORPORATE GOVERNANCE AND BANK RISK IN ASEAN COUNTRIES SPECIALIZATION: FINANCE AND BANKING CODE: 9340201 PHD THESIS SUPERVISORS: LÊ HỒ AN CHÂU, Ph.D. PHẠM PHÚ QUỐC, Ph.D. HO CHI MINH CITY-2022 STATEMENT OF AUTHORSHIP My name is Nguyen Quang Khai, PhD student in the major of Banking at University of Economics Ho Chi Minh City (UEH) I declare that “this thesis is my own work, and except where due reference is made, contains no material previously written or published by any other people. I ensure that this thesis has not been, and will not be, submitted in whole or in part to any ther educational institution for the award of any other degree.” Ho Chi Minh City, 2022 Nguyen Quang Khai ACKNOWLEDGMENTS First, I would like to thank my academic advisers Dr. Le Ho An Chau and Dr. Pham Phu Quoc for their enthusiastic help, instruction, intensive support, care, and advice on my research. They have granted me the autonomy to conduct and publish my research while continuing to review and provide me with exhaustive valuable feedback and encouragement. Second, I would like to sincerely thank the School of Banking and the UEH university for providing me with the best study and research environment. I would also like to thank my professors, the journal’s editor, and the independent external reviewers for giving me numerous useful comments on my research. All their comments helped me improve and complete my thesis. Lastly, I am extremely grateful to my family for their love, support, and sacrifice, as well as to my friends and colleagues who have encouraged and supported me very much during the learning process, work, and completion of this thesis. Ho Chi Minh City, 2022 Nguyen Quang Khai TABLE OF CONTENTS ABBREVIATIONS ASEAN: Association of South East Asian Nations 2SLS: Two stage least square BCBS: Basel Committee on Banking Supervision BOD: Board of director CEO: Chief Executive Officer. Cons: Constants FE: Fixed effect H: Hypothesis IMF: International Monetary Fund IOSCO: International Organization of Securities Commissions LM: Lagrange Multiplier M&A: Mergers and acquisitions NPV: Net-present-value NYSE: New York Stock Exchange Obs: Observation RE: Random effect RQ: Research question SGMM: System generalized method of moments SOX:Sarbanes-Oxley Act of 2002 LIST OF TABLES Table 2.1: Research Questions and Related Hypotheses 63 Table 3.1: Summary of Banks and Observations by Country 66 Table 3.2: Summary of Definition, Source and Predicted Signs of Variables for Equations 3.3 74 Table 3.3: Definition of the Risk Governance Effectiveness Index (RGDEX) 83 Table 3.4: Summary of Definitions, Predicted Sign of Variables for Equations 3.5 and 3.6 86 Table 3.5: Summary of Definitions, Predicted Sign of Variables for Equations 3.7 94 Table 3.6: Summary Testing Procedures for the Hypotheses Associated with RQ1, RQ2, and RQ3 96 Table 4.1: Descriptive Statistics for Main Variables 99 Table 4.2: Correlation Matrix 101 Table 4.3: Determinants of Risk Governance Structure Results 110 Table 4.4: Two-Stage Least Square (2SLS) Regression Results for the Determinants of Risk Governance Structure 112 Table 4.5: System GMM Regression Results for Risk Governance and Insolvency Risk 117 Table 4.6: System GMM Regression Results for Risk Governance and Credit Risk 119 Table 4.7: System GMM Regression Results for Risk Governance and Operational Risk 123 Table 4.8: System GMM Regression Results for Institutional Quality and Risk Governance Effectiveness-Risk taking Relation. 125 Table 4.9: System GMM Regression Results for Risk Governance and Bank Risk in Pre-Crisis 2008 129 Table 4.10: System GMM Regression Results For Risk Governance and Bank Risk in Post-Crisis 2008 131 Table 4.11: Robustness Test for Risk Governance and Insolvency Risk 133 Table 4.12: Robustness Test for Risk Governance and Credit Risk 135 Table 4.13: Robustness Test for Risk Governance and Operational Risk 137 Table 4.14: Results for the Institutional Quality and Risk Governance Effectiveness-Risk taking Relationship using Alternative Measure. 138 Table 4.15: Results for Risk Governance Structure, Risk Governance Effectiveness and Bank Risk Management. 143 Table 4.16: Robustness Test Results for Risk Governance Structure, Risk Governance Effectiveness and Bank Risk Management. 146 Table 5.1: Summary of Research Question 1 151 Table 5.2: Summary of Research Question 2 153 Table 5.3: Summary of Research Question 3 155 LIST OF FIGURES Figure 1.1: Average risk and risk governance effectiveness of banks by year 6 Figure 1.2: Average risk and risk governance effectiveness of banks by country 6 Figure 1.3: Summary of the literature review of the three research questions 15 Figure 1.4: General objectives of the thesis 16 Figure 2.1: Corporate governance framework. 29 ABSTRACT This thesis examines the determinants of bank risk governance structure, and the impact of risk governance structure and risk governance effectiveness on bank risk-taking behavior, as well as the impact of risk governance structure and risk governance effectiveness on risk management effectiveness. In the context of regulators around the world trying to provide guidelines for banks to make corporate governance of banks more effective after the 2008 financial crisis, the study of bank risk governance structure and its effectiveness has become increasingly important. By using a sample of 104 commercial banks in ASEAN countries over 2002-2019 and applying empirical analysis techniques such as FE/RE, Logit, 2SLS, and GMM, this study provides some important findings. First, regarding bank risk governance structure determinants, this thesis finds that risk governance structure (including audit committee size, audit committee independence, financial and accounting experts on the audit committee, audit committee meeting frequency, risk committee existence, and external audit quality) relates positively to a bank’s scope of operation and monitoring benefit, but negatively to monitoring cost and CEO’s negotiation power . Second, regarding the impact of bank risk governance structure and risk governance effectiveness on risk-taking behavior, this thesis finds that risk governance structure significantly affects bank risk-taking behavior (measured by insolvency risk, credit risk and operational risk). We also find that the role of risk governance remains unchanged following the 2008 financial crisis and that the relationship between risk governance effectiveness and risk-taking behavior depends on a country’s institutional quality. Finally, regarding the impact of bank risk governance structure and risk governance effectiveness on risk management effectiveness, this thesis reveals that risk governance structure and its effectiveness are positively associated with risk management effectiveness. This study contributes to the existing corporate governance of bank literature by providing evidence that risk governance structure and its effectiveness play an important role in constraining risk-taking and in enhancing risk management effectiveness. The findings of this thesis offer some useful implications for bank regulators, shareholders, and creditors. Regulators can establish guidelines related to risk governance to manage risk-taking activities and maintain bank stability. Bank shareholders can require banks to restructure their risk governance structure to reduce agency problems relating to risk-taking. Finally, creditors can consider bank risk governance structure as an important factor when considering extending funds to particular banks. Key words: risk governance structure, risk governance effectiveness, risk-taking behavior, risk management effectiveness, ASEAN countries. TÓM TẮT Luận án này nghiên cứu các yếu tố tác động đến cấu trúc quản trị liên quan đến giảm sát rủi ro ngân hàng, tác động của cấu trúc quản trị, hiệu quả cơ chế quản trị rủi ro đến hành vi chấp nhận rủi ro của ngân hàng và tác động của cơ cấu quản trị rủi ro, hiệu quả cơ chế quản trị rủi ro đến hiệu quả quản trị rủi ro. Trong bối cảnh các cơ quan quản lý trên thế giới nói chung đang cố gắng đưa ra các hướng dẫn cho các ngân hàng nhằm cải thiện cơ chế quản trị rủi ro của các ngân hàng để đảm bảo hoạt động hiệu quả hơn sau cuộc khủng hoảng tài chính 2008, thì việc nghiên cứu về cấu trúc quản trị liên quan đến giảm sát rủi ro ngân hàng và tính hiệu quả của nó ngày càng trở nên quan trọng. Bằng cách sử dụng mẫu 104 ngân hàng thương mại ở các nước ASEAN trong giai đoạn 2002-2019 cũng như áp dụng một số kỹ thuật phân tích thực nghiệm, như FE / RE, Logit, 2SLS và SGMM, nghiên cứu này cung cấp một số phát hiện quan trọng. Đầu tiên, liên quan đến các yếu tố ảnh hưởng đến cơ cấu quản trị rủi ro ngân hàng, luận án này nhận thấy rằng cơ cấu quản trị rủi ro (bao gồm quy mô ban kiểm soát, tính độc lập của ban kiểm soát, tỷ lệ chuyên gia tài chính và kế toán trong ban kiểm soát, tần suất họp ban kiểm toán, sự tồn tại của ủy ban rủi ro và chất lượng kiểm toán độc lập) tương quan dương với phạm vi hoạt động của ngân hàng và lợi ích giám sát, nhưng tương quan âm đến chi phí giám sát và sức mạnh thương lượng của CEO. Thứ hai, về tác động của cơ cấu quản trị rủi ro ngân hàng, hiệu quả quản trị rủi ro đến hành vi chấp nhận rủi ro, luận án nhận thấy cơ cấu quản trị rủi ro ảnh hưởng đáng kể đến hành vi chấp nhận rủi ro của ngân hàng (được đo lường bằng rủi ro thanh khoản, rủi ro tín dụng và rủi ro hoạt động). Chúng tôi cũng nhận thấy rằng vai trò của quản trị rủi ro vẫn không thay đổi sau cuộc khủng hoảng tài chính 2008 và mối quan hệ giữa hiệu quả cơ chế quản trị rủi ro và hành vi chấp nhận rủi ro phụ thuộc vào chất lượng thể chế của quốc gia. Cuối cùng, về tác động của cơ cấu quản trị rủi ro ngân hàng và hiệu quả của cơ chế này đến hiệu quả quản trị rủi ro, luận án này cho thấy rằng cơ cấu quản trị rủi ro và hiệu quả của nó có tương quan dương với hiệu quả quản trị rủi ro. Nghiên cứu này đóng góp vào các nghiên cứu trước đây về cơ chế quản trị rủi ro của các ngân hàng bằng cách cung cấp bằng chứng cho thấy cấu trúc quản trị rủi ro và tính hiệu quả của nó đóng một vai trò quan trọng trong việc hạn chế chấp nhận rủi ro cũng như nâng cao hiệu quả quản lý rủi ro. Kết quả của luận án này cung cấp một số ý nghĩa hữu ích cho các cơ quan quản lý ngân hàng, cổ đông và người gởi tiền. Các cơ quan quản lý có thể thiết lập các hướng dẫn liên quan đến quản trị rủi ro để quản lý các hoạt động chấp nhận rủi ro và duy trì sự ổn định của ngân hàng. Các cổ đông ngân hàng có thể yêu cầu ngân hàng tái cấu trúc cơ cấu quản trị rủi ro để giảm vấn đề đại diện liên quan đến việc chấp nhận rủi ro. Cuối cùng, các chủ nợ có thể coi cấu trúc quản trị rủi ro ngân hàng là một yếu tố quan trọng khi xem xét việc cho vay ở các ngân hàng cụ thể. Từ khóa: cấu trúc quản trị rủi ro, hiệu quả cơ chế quản trị rủi ro, hành vi chấp nhận rủi ro, hiểu quả quản trị rủi ro, các quốc gia Đông Nam Á. CHAPTER 1: INTRODUCTION Introduction While the determinants of corporate governance structure in the banking sector, as well as the relationship between corporate governance structure and bank risk-taking behavior, have been discussed widely, empirical explorations of this field are scant. This thesis analyzes the bank risk governance structure The term “risk governance” was broadly used in the literature. We discuss more this term in Section 2.2 (defined as corporate governance related to risk management and its role in the oversight of risk-taking behaviors and risk management) and its effectiveness, as well as investigates whether it affect bank risk-taking behavior and risk management effectiveness. Risk management encompasses activities engaged in to ensure the effectiveness of taking risk The term “risk management” was broadly used in the literature. We discuss more this term in Section 2.2 . The sweeping corporate governance of banks reforms related to risk governance following the 2008 financial crisis raised concerns over existing bank risk governance mechanisms and their effectiveness. Researchers, therefore, are more interested in bank risk governance. Indeed, the study of bank corporate governance and risk governance is more and more important because banks are now more diversified, larger, and more complex organizations. To that end, evidence is sought on whether bank risk governance structure evolves in relation to (1) banks’ “scope of operation,” (2) trade-offs between monitoring costs and benefits, and (3) the CEOs’ negotiation power. With few exceptions, multivariate regression analysis of the six important risk governance structure variables (audit committee size, audit committee independence, financial and accounting experts on the audit committee, audit committee meeting frequency, risk committee existence, and external audit quality) supports the predictions. The results are robust to different estimation methods. In relation to bank risk-taking, the study finds that risk governance structure affects bank risk-taking behavior in different ways. Most risk governance variables are significantly associated with bank risk-taking and provide strong evidence that corporate governance can help banks constrain bank risk-taking. Audit committee independence, financial and accounting expertise, audit committee meeting frequency, stand-alone risk committee, and external audit quality relate negatively to bank risk-taking, but audit committee size is positively related to risk-taking. Moreover, risk governance effectiveness, in general, can reduce risk-taking behavior. These results are also robust by using different estimation methods or investigating two different periods—before and after the 2008 financial crisis. The results show that the role of the audit committee, external audit, and risk governance effectiveness on oversight risk-taking is unchanged following the 2008 financial crisis. Additionally, we find that the role of risk governance in constraining bank risk-taking became more effective in countries having high institutional quality. Regarding bank risk management effectiveness (i.e., the positive relationship between bank risk and bank performance), evidence is sought on the role of risk governance structure (except audit committee size) and risk governance effectiveness in enhancing bank risk management. This chapter provides an overview of the thesis and includes the following sections: In Section 1.2, we present the background and motivation of the thesis; this section will help identify the research objectives and the three related research questions discussed in Section 1.3. From the research objectives and research questions set out in Section 1.3, Section 4 summarizes the research methods employed to achieve the objectives, and Section 1.5 outlines the research limit and scope. Based on the research objectives, Section 1.6 analyzes the contributions of the thesis. Finally, Section 1.7 presents the structure of the remaining chapters of this thesis. Background and Motivation 1.2.1 Corporate governance and bank risk in ASEAN In ASEAN countries, the financial system in these countries is receiving more and more attention because this is a dynamic financial and economic area and is considered to soon become one of the five most developed financial regions in the world. And because of higher financial openness, any adverse shock to the banking sector in these countries may have a contagion effect on other countries (Moudud-Ul-Huq et al., 2018). In addition, the financial crisis of 1997–1998 experienced by Asian countries, followed by that of 2008, highlighted the weaknesses of bank risk governance as a major cause of the failure (Aebi et al., 2012; Erkens et al., 2012; Hopt, 2013). Weakness in bank risk governance is particularly comprised of the lack of understanding of risk-taking activities in risk management and boards not paying much attention to their risk management function (FSB, 2013; OECD, 2015). After the 2008 financial crisis, several international multilateral bodies such as the “Basel Committee on Banking Supervision” (BCBS), the “Financial Stability Board” (FSB), the “Organization for Economic Co-operation and Development” (OECD), and the International Monetary Fund (IMF) published a corpus of guidelines and principles to improve the practices in bank risk governance in particular and in bank corporate governance in general (FSB, 2013; BCBS, 2015; OECD, 2015; IMF, 2009). Although these guidelines and principles have the common goal of enhancing the effectiveness of bank risk governance, they are not consistent. For example, BCBS (2015) suggests that the audit committee should “have a chair who is independent and is not the chair of the board or of any other committee” and “include members who have experience in audit practices, financial reporting, and accounting”, while the FSB (2013) suggests that members be independent and “include members who have experience with regard to audit practices and financial literacy at a financial institution”. The FSB (2013) also strongly suggests that banks have a stand-alone risk committee distinct from the audit committee, and BCBS (2015) still insists that the audit committee play a risk oversight role. These inconsistent guidelines may make it difficult for banks worldwide to establish appropriate risk governance structures. Following the 2008 financial crisis, most banks in ASEAN countries started implementing risk governance practices, but in different ways. Some countries established or revised guidelines related to governance based on the guidelines of international multilateral bodies. Singapore and Malaysia, for example, issued "Risk Governance" guidelines in 2013, Bank Indonesia (Indonesian regulator) issued Circular Letter No.13/24/DPNP in 2012 which explicitly explains risk governance, and the Bank of Thailand (Thailand regulator) published The Handbook for Directors of Financial Institutions, explaining in Chapter 4 the role of boards in promoting risk governance. While Banko Sentral ng Pilipinas (Philippine regulator) adopted guidance relating to risk governance in August 2017 with the publication of Circular 971, Vietnam’s corporate governance code of best practices draws upon the G20/OECD principles of corporate governance for both financial and non-financial firms. The codes or guidelines related to risk governance are very different in these countries. For example, the existence of a risk committee is mandatory in Malaysia, Thailand, Indonesia, Vietnam, Singapore, and the Philippines, but not in certain other countries. Relating to the audit committee structure, the Indonesian regulator requires that audit committees consist of at least two independent members, while Thailand and Malaysian regulators require at least three (Nam & Lum, 2006). All these differences make the risk governance structure of banks in ASEAN countries different. Meanwhile, some researchers still consider international guidelines to be general and incapable of guiding banks in ensuring effective corporate governance (Helleiner, 2010). Walker (2011) argues that continuous improvement in risk management and strengthened governance can prevent future financial crises. Therefore, many countries, including those of ASEAN, informed by these international standards, have tried to establish or to revise their guidelines and regulations in order to enhance bank risk management, restructure risk governance structures, and maintain bank stability.. Actually, risk governance of banks is based on these guidelines not only in ASEAN countries but also in others. How