THE RELATIONSHIP BETWEEN THE BANKING REGULATORY SYSTEMS IN COUNTRIES, CORPORATE GOVERNANCE PRACTICES AND RISK-TAKING BEHAVIOUR OF BANKS

Abstract

I examine the role different regulatory regimes can play when assessing the relationship between corporate governance and bank risk taking behavior. I find that corporate governance has a negative significant effect on bank risk taking behavior in regimes with strong regulatory environments while corporate governance has no effect on the risk taking of banks with weak regulatory regimes. My evidence suggests that corporate governance can reduce bank risk taking when the regulatory environment is supportive of the corporate governance mechanisms and that without regulatory support, corporate governance cannot be effective in curbing excessive risk taking of banks.