Risk governance, banks affiliated to business groups, and foreign ownership

Abstract

The aim of the present work is to study the effect of risk governance on the profitability of a sample of listed banks in Mexico during the period 2007–2015. The evidence presented here shows that functions of risk governance have an impact of only slight significance on the profitability of banks, which suggests that the dispositions and recommendations for risk governance are only fulfilled in a limited way. One possible explanation for this finding is related to patterns of ownership structure, due to the presence of banks linked to business groups, that give risk management a secondary role while other objectives are given greater emphasis. However, in foreign-owned banks also there were no patterns very different from the previous ones. The results suggest that the effective size of the risk committee and the independence of the chair of this committee are the only relevant risk governance mechanisms in commercial banks established in Mexico.