Luận án: Cơ chế quản trị và rủi ro ngân hàng ở ASEAN - Nguyễn Quang Khải

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-2022 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 SPECIALIZATION: FINANCE AND BANKING CODE: 9340201 PHD THESIS SUPERVISORS: 1. LÊ HỒ AN CHÂU, Ph. PHẠM PHÚ QUỐC, Ph. HO CHI MINH CITY-2022 iii 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 iv 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 v TABLE OF CONTENTS STATEMENT OF AUTHORSHIP. iv TABLE OF CONTENTS. x LIST OF TABLES. xi LIST OF FIGURES.

xv CHAPTER 1: INTRODUCTION .2 Background and Motivation .1 Corporate governance and bank risk in ASEAN .2 Background of literature on corporate governance and bank risk .3 Research Objectives and Questions .4 Data and Research Design .5 Scope of Research .6 Contribution of the Thesis .7 Structure of the Thesis. 21 CHAPTER 2: THEORY AND LITERATURE REVIEW .2 Bank Risk and Risk Governance Structure .1 Risk and different types of risk within the banking sector.2 Bank risk-taking.3 Bank risk management effectiveness.2 Corporate governance and bank risk governance.1 Board of directors.2 Audit committee and external audit .3 Stand-alone risk committee .3 Bank Risk Governance Structure Theory and Evidence.1 Scope of operation theory .4 Hypothesis related to RQ1 .1 Risk governance structure and bank scope of operation .2 Risk governance structure and the trade-off between monitoring cost and benefit .3 Risk governance structure and CEO’s negotiation power .4 Bank Risk-Taking Theory and Evidence .1 Moral hazard theory.5 Hypothesis related to RQ2 .1 Risk governance structure and risk taking.2 Risk governance effectiveness and bank risk-taking .3 Institutional quality and the risk oversight role of risk governance .5 Bank Risk Management Theory and Evidence .2 Hypothesis related to RQ3. 62 CHAPTER 3: RESEARCH METHODOLOGY .3 Methodology for Determinants of Bank Risk Governance Structure (related to RQ1) .1 Measures of bank risk governance structure .2 Measures of “scope of operation” .3 Measures of private benefits and monitoring costs .4 Measures of CEO’s negotiation power .5 Measures of other control variables .2 Empirical model and estimation methods .4 Methodology for Relationship between Bank Risk Governance Structure and Risk-Taking (related to RQ2) .1 Measures of bank risk-taking .2 Measures of bank risk governance structure and its effectiveness .3 Measures of other control variables and interaction variables .2 Empirical model and estimation methods .5 Methodology for the Relationship between Bank Risk Governance and Risk Management Effectiveness (related to RQ3) .1 Bank performance measures .2 Empirical model and estimation method. 95 CHAPTER 4: EMPIRICAL RESULT AND DISCUSSION .2 Descriptive Statistics and Correlation Matrix .3 Determinants of Bank Risk Governance Structure: Empirical Results (RQ1) 103 4.1 Regression results for RQ1 .1 Scope of operation and bank risk governance structure results .2 Trade-off between monitoring cost and benefit and risk governance structure results .3 CEO’s negotiation power and risk governance structure results .2 Robustness tests for RQ1 .4 Bank Risk Governance and Risk-Taking: Empirical Results (RQ2) .1 Bank risk governance and insolvency risk .2 Bank risk governance and credit risk .3 Bank risk governance and operational risk .4 Institutional quality and Risk governance structure-Risk taking relation 124 4.5 Robustness tests for RQ2 .1 Bank risk governance and risk-taking prior to and following the 2008 crisis .2 Alternatives to risk-taking measures .5 Bank Risk Governance Structure and Risk Management Effectiveness: Empirical Results (RQ3).2 Review of the Research Questions, Hypotheses, and Findings .5 Limitations of the Thesis .6 Future Research Directions.

160 LIST OF AUTHOR’S PUBLICATIONS AND RESEARCH PROJECTS. 163 Appendix 1: Estimation result of Table 4. 176 Appendix 2: Estimation result of Table 4. 179 Appendix 3: System GMM Estimation result, Arellano-Bond test and Hansen test of table 4.

182 ix Appendix 4: System GMM Estimation result, Arellano-Bond test and Hansen test of table 4. 186 Appendix 5: System GMM Estimation result, Arellano-Bond test and Hansen test of table 4. 190 Appendix 6: System GMM Estimation result, Arellano-Bond test and Hansen test of table 4. 194 Appendix 7: System GMM Estimation result, Arellano-Bond test and Hansen test of table 4.

196 Appendix 8: System GMM Estimation result, Arellano-Bond test and Hansen test of table 4. 199 Appendix 9: System GMM Estimation result, Arellano-Bond test and Hansen test of table 4. 203 Appendix 10: System GMM Estimation result, Arellano-Bond test and Hansen test of table 4. 207 Appendix 11: System GMM Estimation result, Arellano-Bond test and Hansen test of table 4.

211 Appendix 12: System GMM Estimation result, Arellano-Bond test and Hansen test of table 4. 215 Appendix 13: System GMM Estimation result, Arellano-Bond test and Hansen test of table 4. 217 Appendix 14: System GMM Estimation result, Arellano-Bond test and Hansen test of table 4. 221 Appendix 15: Further Test for FE/RE Models.

225 Appendix 16: Data of Institutional Quality. 227 x 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 xi LIST OF TABLES Table 2.1: Research Questions and Related Hypotheses .1: Summary of Banks and Observations by Country .2: Summary of Definition, Source and Predicted Signs of Variables for Equations 3.3: Definition of the Risk Governance Effectiveness Index (RGDEX) .4: Summary of Definitions, Predicted Sign of Variables for Equations 3.5: Summary of Definitions, Predicted Sign of Variables for Equations 3.6: Summary Testing Procedures for the Hypotheses Associated with RQ1, RQ2, and RQ3 .1: Descriptive Statistics for Main Variables .3: Determinants of Risk Governance Structure Results .4: Two-Stage Least Square (2SLS) Regression Results for the Determinants of Risk Governance Structure .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 .7: System GMM Regression Results for Risk Governance and Operational Risk .8: System GMM Regression Results for Institutional Quality and Risk Governance Effectiveness-Risk taking Relation.9: System GMM Regression Results for Risk Governance and Bank Risk in Pre- Crisis 2008 .10: System GMM Regression Results For Risk Governance and Bank Risk in Post-Crisis 2008 .11: Robustness Test for Risk Governance and Insolvency Risk .12: Robustness Test for Risk Governance and Credit Risk .13: Robustness Test for Risk Governance and Operational Risk .14: Results for the Institutional Quality and Risk Governance Effectiveness-Risk taking Relationship using Alternative Measure.15: Results for Risk Governance Structure, Risk Governance Effectiveness and Bank Risk Management.16: Robustness Test Results for Risk Governance Structure, Risk Governance Effectiveness and Bank Risk Management.1: Summary of Research Question 1 .2: Summary of Research Question 2 .3: Summary of Research Question 3. 155 xii LIST OF FIGURES Figure 1.1: Average risk and risk governance effectiveness of banks by year .2: Average risk and risk governance effectiveness of banks by country.3: Summary of the literature review of the three research questions .4: General objectives of the thesis .1: Corporate governance framework.

29 xiii 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. xiv 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. xv 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.