Corporate Governance and Risk Taking in Banking: A Research Report

This report delves into the crucial relationship between corporate governance and risk management within the banking sector. It begins by establishing the importance of banking in the economy and defines corporate governance as the framework governing relationships between company leadership, shareholders, and other stakeholders. The report then outlines the research aim, which is to understand the significance of corporate governance in managing and regulating risk in the banking industry. It explores research problems such as weak corporate governance as a factor in financial crises. The literature review examines the role of financial regulation and presents theoretical perspectives on corporate governance, including stewardship, stakeholder, and agency theories. The methodology section describes the use of primary data sources, including questionnaires, to gather relevant information from bank managers and employees. The report concludes by emphasizing the importance of corporate governance and risk management for a stable banking sector. The report highlights the significance of strong committees, board members, and effective management structures. References to books and journals used in the report are provided.

Corporate Governance
and Risk Taking in
Banking sector

Contents
Background............................................................................................................................1
Research Aim.........................................................................................................................1
Literature Review.............................................................................................................................2
3 Research Methodology.................................................................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

Corporate Governance and Risk Taking in Banking sector
Background
This is found in the current moment that banking has various important roles in a
particular time which negatively impacts a nation's economy. As exchange, business operations
and other human financial requirements can only be satisfied with the availability of sufficient
and acceptable banking services and goods (Orazalin, Mahmood and Lee, 2016). Corporate
governance is described as a collection of relations between company leadership as well as the
member of the board, shareholder as well as other investors. Financial institutions are in a unique
position to have a company-specific use of such a budget effectively. In which these tools are
being used properly and effectively it can contribute in a dynamic economy, lower operating
prices and therefore stimulate growth for the good of the sector as a whole. The primary role in
financial regulation is to provide domestic banker with clear guidelines regarding resource
allocation in such an effective way. It would be beneficial to create and structure and valuable
corporate governance in almost every bank that aids to increase the suitable and faithful
operation for their customer. Therefore, it will encourage the development of a positive and
successful administrative partnership within the bank and its valued client.
Research Aim
The study objective is useful in describing the significance of corporate governance
throughout the management and regulate of threat in the banking industry.
 To recognise the requirements of Corporation governance in banking institution.
 To figure out the financial thereat arising in the banking sectors. To investigate the possible ways financial regulation can contribute the manage and
reduce risk of banking institution.
Research problems
Weak and incompetent corporate governance frameworks in banking are identified as
primary contributory factors to the financial crisis. Banks were not unreasonably responsible for
the downfall of the capital market. The failure and insufficiency of the corporate governance
structures in banking entities are recorded the main reason. Significant reforms in this field are
expected to improve sustainability in the banking sector. The research paper addresses core
reform related elements such as board position, structure of bank, risk assessment, management
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remuneration. New rules and instruction are described, which will lay the groundwork for just a
current financial market order.
Literature Review
Descriptive summary
In current banking industry, the significance of corporate governance occurs because of
the division of rules and laws or rights in different banks. According to the differing preferences
of the customer of banks the financial regulation is beneficial in setting the frameworks which
help the desired customer (Haseeb, 2018). Good corporate governance, is consider to be an
important component in a banking industry that provide each customer most valuable services
and operation. It could even also remove or reduce the risk related with financial goods in case if
framework provided is followed in desired manner.
In the recent years, several scholars and international bodies have come forward with
different corporate governance concepts though they all share almost the same significance.
As per the viewpoint of James McRitchie, (2020) Corporate governance is a considered
as a structured and associated framework which help to determine the performance and direction
of task and operation to be performed within an organisation.
The Organisation for Economic Co-operation and Development, (2010) states that "the
corporate governance system defines the allocation of legal rights among many of the different
company actors like board members, executives, investors and other investors-and sets out the
guidelines and judgement making processes”.
In the opinion of Young and Thyil, (2014) Corporate Governance interacts with the way
funding companies themselves ensure a decent value for their money. It makes a clear distinction
between the shareholders and the administrators and the decision making process.
Theoretical review
Several theoretical constructs also emerged to describe corporate governance from a
different perspective. These have some concepts to be relevant and some to be different in many
aspects. There is various crucial aspect which support in defining the aim of Corporate
governance in financial institutions such as:
Stewardship Theory
Methods to stewardship is probably based on value such a define and articulate shared ideals or
principles as expectations of competence. As well as it helps to create development programs
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beneficial to the pursuit of perfection and react by offering emotional support to "gaps" in values.
Managers behave as guardians or guardian they function as though they were shareholders
instead of simply trustees of another's rights in respect of compassion and care shown for the job.
In other terms, the isolation suggested in the philosophy of agencies acting not for oneself but for
another, disappears as the corporation's employees and managers absorb the role of both the
employee. Managers and staff may be able to serve as company leaders or guardians (Akhigbe,
Martin and Whyte, 2016). It ensures that even if they do not own the capital of the company,
they must preserve these for the founders. A steward is a care taker which takes care of the land
and properties of the proprietor whenever the owner is absent. Managers also lay down the
fundamental purposes for which organization remains. But they're also capable of providing a
climate appropriate for administrators to grow individual possibilities to create populations and
participate in productive work.
Stakeholder Theory
In this strategy, owners slip out of another centre of the action to be among many, fair
stakeholders. Examples of corporate stakeholders include stockholders, employees, customers,
suppliers, local community, and government. The corporation on this view exists for the sake of
its stakeholders, not stockholders. The first characteristic of the manager position is the
aforementioned decrease in central importance. In almost the same context they support their
preferences as the other shareholders, but they also need to find ways to make their priorities
compliant with other interested parties. This needs alignment of preferences wherever possible
and concessions that maintain honesty where necessary. Managers perform a crucial narrative-
role here. They are loyal partners and not simply shareholders, of all owners. Therefore, they are
becoming coaches or intermediaries (to switch metaphors) around stakeholders. We supervise
creating broader organizational principles that can consume and incorporate narrower
stakeholder desires. Failure to comply and value-based strategies are mixed by the stakeholder
methods. Corporate executives identify an ethical and legal baseline in accordance; this
comprises of the minimal set of rules needed for peace and harmony between stakeholders.
Further than that, cost-based strategies aim to create similar, wider times of objectivity, values
that can bind the multiple participants in pursuit of money (Bougatef and Mgadmi, 2016).
Agency theory
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In the theory of companies, the managers / directors set the company's core goals. Managers,
in effect, are responsible for enforcing certain goals then though-to-day activities of the
company. Corporate governance comprises of developing leadership control structures and
processes, i.e., keeping their behaviour in line with targets set by the director. Managers can
not be entrusted to stay true agents, that is, to remain loyal to the managers / directors ' goals
and interests. That presumes a specific view of the human. Human beings are egoistic and
moral. They have wishes and they are using justification to devise means for their realization.
Because one greed can only be manipulated by another purpose, the selfishness is
theoretically infinite. The theory of agencies suggests that administrators can manipulate
organizational resources to achieve their own selfish goals, unless some internal control
system tests them. Therefore, under agency theory, another key component of governance is
to find most effective control mechanisms to hold manager amorality in control.
Stockholders are geared to self-interest, so the shareholder principle takes a selfish /
Hobbesian view of the human together with the concept of agencies. The human beings are
moral maximizers of ego-interest. Owners would anticipate this from employees and
managers at the company. We will incorporate processes and control that channel the
company and its leaders against their self-interest (owners). The owners spend in the
company and are looking for a gain (profit) on the expenditure. But this limited position has
been extended into regulating the activities of the companies and their executives to ensure
that the company complies with government-setting ethical and legal requirements. Just as
the master was liable under tort law for injuries caused by a servant's misconduct, so are the
managers liable for the harm caused by their company, the company.
3 Research Methodology
This strategy will be pursued primarily to insure that the banks has implemented not only
safety requirements to its structure but also in its substance. This will support to promote
efficiency, integrity and equity in the banking sector (Mersni and Othman, 2016).
Source of data
In this research primary source of data have been selected under which specific
questionnaires will be used in order to collect the relevant data.
Sample
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The targeted population will be the responsible manager and employee working in banks
who have core understanding and knowledge about banking sectors.
Limitation
There may be various types of problems and obstacles that occur whenever data needs to
be gathered on particular research topics. Such as:
 Several of the survey questions might be ignored completely in particular because of
absence of time.
 Many participants can misunderstand questions and give wrong answer.
Many bank might not be willing to provide details related to corporate practices and may
therefore be constrained in sample size (Aguilera and Crespi-Cladera, 2016).
CONCLUSION
In the end of report, it is concluded that corporate governance is very must important in
the functioning of different bank so that overall economy of a nation can be improved. This
highlights the importance of risk management as part of the general corporate governance system
for a corporation and encourages the significance of powerful committees and board members
along with effective management structures.
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REFERENCES
Books and Journals
Orazalin, N., Mahmood, M. and Lee, K. J., 2016. Corporate governance, financial crises and
bank performance: lessons from top Russian banks. Corporate Governance: The
International Journal of Business in Society.
Haseeb, M., 2018. Emerging issues in islamic banking & finance: Challenges and
Solutions. Academy of Accounting and Financial Studies Journal, 22, pp.1-5.
Akhigbe, A., Martin, A. D. and Whyte, A. M., 2016. Dodd–Frank and risk in the financial
services industry. Review of Quantitative Finance and Accounting. 47(2). pp.395-415.
Bougatef, K. and Mgadmi, N., 2016. The impact of prudential regulation on bank capital and
risk-taking: The case of MENA countries. The Spanish Review of Financial
Economics. 14(2). pp.51-56.
Mersni, H. and Othman, H. B., 2016. The impact of corporate governance mechanisms on
earnings management in Islamic banks in the Middle East region. Journal of Islamic
Accounting and Business Research.
Aguilera, R. V. and Crespi-Cladera, R., 2016. Global corporate governance: On the relevance of
firms’ ownership structure. Journal of World Business. 51(1). pp.50-57.
Books and Journals:
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