Impact of Corporate Governance on Risk Management Practices in Financial Institutions

Authors

Dr Sunil Kumar Sharma

Abstract

This research paper investigates the impact of corporate governance on risk management practices in financial institutions. Corporate governance mechanisms, including board composition, executive compensation, shareholder activism, and regulatory compliance, are examined in relation to risk identification, assessment, monitoring, and control. The study adopts a quantitative research design, utilizing primary and secondary data sources to analyze a sample of 100 financial institutions. Descriptive statistics and correlation analysis are employed to assess the relationships between governance factors and risk management indicators. The findings reveal that institutions with stronger governance structures demonstrate more robust risk management frameworks, characterized by lower levels of credit risk, market risk, liquidity risk, and operational risk. Board independence emerges as a significant determinant of risk management effectiveness, while shareholder activism and regulatory compliance also contribute to better risk outcomes. The implications of the research findings are twofold: first, they offer actionable insights for financial institutions seeking to enhance their risk management practices; second, they inform policymakers and regulators about the importance of effective governance frameworks in promoting financial stability and resilience. Future research could explore longitudinal approaches and investigate the role of cultural and contextual factors in shaping governance practices and risk management effectiveness.

Keywords

corporate governance, risk management, financial institutions, board independence, executive compensation, shareholder activism, regulatory compliance, empirical analysis, implications, future directions

Impact of Corporate Governance on Risk Management Practices in Financial Institutions. Dr Sunil Kumar Sharma. 2024. IJIRCT, Volume 10, Issue 3. Pages 1-10. https://www.ijirct.org/viewPaper.php?paperId=2405025