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Do Banks Effectively Manage Their Risks? The Role of Risk Governance in the MENA Region

Lookup NU author(s): Dr Aly SalamaORCiD



This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY-NC-ND).


This study aims to investigate (1) the effects of the creation of a board-level risk committee (RC) and the designation of a chief risk officer (CRO) on the risk-taking practices undertaken by financial institutions and (2) whether these mechanisms improve the risk management effectiveness of both conventional banks (CBs) and Islamic banks (IBs). We contribute to the scarce literature on the relationship between risk governance and risk-taking behaviour and investigate IBs in this context. Using a sample of 573 observations representing 65 banks (28 CBs and 37 IBs) in the Middle East and North Africa (MENA) region from 2005 to 2015, we find a negative association between the risk governance indices and their risk perspectives across both types of banks for the post-crisis period. Interestingly, we find that the existence of risk governance mechanisms in IBs is associated with higher risk taking for the pre-crisis period, i.e., before the recent amendments to the risk governance principles in the MENA region. This result implies that IBs can respond to regulatory reforms in the post-crisis period by curbing excessive risk taking. We offer further evidence that the risk governance effect on overall risk taking stems only from the stand-alone board-level RC and not from the role of the CRO. We note that the CBs’ performance is more associated with risk taking for banks with stronger board-level RCs. The board-level RCs improve the effectiveness of risk management within CBs but do not influence the risk management effectiveness of IBs.

Publication metadata

Author(s): Aljughaiman A, Salama A

Publication type: Article

Publication status: Published

Journal: Journal of Accounting and Public Policy

Year: 2019

Pages: epub ahead of print

Online publication date: 10/10/2019

Acceptance date: 12/09/2019

Date deposited: 23/09/2019

ISSN (print): 0278-4254

Publisher: Elsevier


DOI: 10.1016/j.jaccpubpol.2019.106680


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