Audit committee characteristics and audit quality on risk-taking behaviour of banks in an emerging economy

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Abstract

The study examined the effect of audit committee size, audit committee independence and audit quality on bank risk-taking behaviour in Ghana. The study collected data on 18 out of 24 commercial banks in Ghana over a 10-year period. The study relied on panel-corrected standard errors (PCSE) to establish the relationship between the variables mentioned above. The results of the study showed that audit quality reduces bank risk-taking behaviour in Ghana. The study also found that audit committee independence reduces excessive risk-taking behaviour by banks in Ghana thereby increasing their Z-scores. The study also found that even though there was a positive coefficient between audit committee size and the Z-scores of commercial banks in Ghana, the relationship was statistically insignificant. On the control variables, the study found that bank liquidity reduces risk-taking behaviour whiles non-performing loans increases bank risk-taking behaviour. The implication of the finding is that the Bank of Ghana should emphasize the need for banks to have independent audit committees and high-quality audits to help reduce their excessive risk-taking behaviour to prevent another financial sector clean-up. The study is important as it demonstrates the importance of audit quality and audit committee independence in reducing excessive risk-taking by commercial banks in Ghana which is critical for the sustenance of the financial system of Ghana. The study also supports the theoretical view that quality audit helps to improve the monitoring of management and ensure that banks are run properly.

Keywords: Audit Committee Characteristics, Audit Quality, Bank Risk-Taking Behaviour, Ghana

Authors’ individual contribution: Conceptualization — A.M.; Methodology — A.M.; Validation — B.O.; Formal Analysis — D.E.A.; Investigation — D.E.A.; Resources — C.T.D. and M.D.A.; Data Curation — D.E.A.; Writing — Original Draft — B.O.; Writing — Review & Editing — B.O.; Supervision — A.M.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G01, G18, G21, G34

Received: 30.08.2022
Accepted: 14.12.2022
Published online: 16.12.2022

How to cite this paper: Musah, A., Okyere, B., Adenutsi, D. E., Dodor, C. T., & Agboado, M. D. (2022). Audit committee characteristics and audit quality on risk-taking behaviour of banks in an emerging economy. Corporate Ownership & Control, 20(1), 125–135. https://doi.org/10.22495/cocv20i1art12