Corporate governance systems and financial risks: A developing country evidence

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Abstract

Banks are one of the essential pillars of the financial sector (Alzuod & Alqhaiwi, 2022), however, banking is a high-risk industry (de Andres & Vallelado, 2008). The aim of this paper is to investigate the impact of the board’s structure and ownership structure on the financial risks of Jordanian commercial banks. Data was gathered manually from the financial reports. Notably, the study addressed two types of financial risks: liquidity risk and credit risk. The study sample included commercial banks listed on the Amman Stock Exchange (ASE) to cover the period 2014–2019. To achieve the study’s objectives, multiple regression analysis was run to test the hypotheses. The results reveal a negative, statistically significant impact of the board size, institutional ownership, and bank size on liquidity risk. The results also demonstrated a negative effect of board independence, ownership concentration, bank size, and CEO duality on credit risk. In sum, the results support previous studies that found a statistically significant role of corporate governance mechanisms in reducing financial risks. The study recommended the need to enhance foreign investment and institutional ownership.

Keywords: Governance Systems, Ownership Structure, Agency Theory, Board Attributes, Credit Risk, Liquidity Risk

Authors’ individual contribution: The Author is responsible for all the contributions to the paper according to CRediT (Contributor Roles Taxonomy) standards.

Declaration of conflicting interests: The Author declares that there is no conflict of interest.

JEL Classification: M41, M48, M49

Received: 10.01.2023
Accepted: 28.08.2023
Published online: 29.08.2023

How to cite this paper: Altawalbeh, M. A. (2023). Corporate governance systems and financial risks: A developing country evidence [Special issue]. Journal of Governance & Regulation, 12(3), 232–242. https://doi.org/10.22495/jgrv12i3siart5