Risk governance and bank profitability in ASEAN-5: a comparative and empirical study

Purpose: The purpose of this paper is to highlight the disparity between the disclosures of risk governance (RGOV) categories, namely, structures both at the board and management level, and RGOV practices among five of the Association of Southeast Asian Nations (ASEAN-5) countries. Furthermore, this paper investigates the effects of RGOV and its categories on return on assets (ROA). Design/methodology/approach: Using 285 ASEAN-5 bank-year observations comprising hand-collected data for the period of 2010–2014, RGOV indexes are developed on the basis of 12 of the 13 governance guidelines published by the Basel Committee. Findings: Although some banks are found to be early adopters, there is an increasing trend of disclosure for all of the investigated categories. Furthermore, there are no effects of the overall RGOV, board-level RGOV structure and risk management practice on ROA. However, the effect of the management-level RGOV structure on ROA is negative and significant. Research limitations/implications: Measurements of RGOV indexes are based solely on the examination of criteria that have not been previously tested. Other limitations are related to the information completeness, subjectivity and interpretation. Practical implications: Management-level RGOV tends to decrease profitability because of the additional costs related to its implementation. Financial regulators may find this result useful as feedback to evaluate the effectiveness of regulation and possible future improvements. Originality/value: This paper’s uniqueness lies in constructing new RGOV indexes on the basis of the latest bank governance guidelines from the Basel Committee issued on July 9, 2015.