Board risk committee composition and risk-taking of deposit money banks in Nigeria

Abstract

Risk oversight by bank boards has become complex due to the evolving nature of risk and thus the need for risk committees to effectively and adequately monitor bank risktaking. The risk taking capability of a financial institution is largely a function of its risk management committee composition. While studies have examined the effect of risk committee dynamics on several organisational variables, few studies examined the relationship between risk committee composition and the risktaking behaviours of banks. However, these few studies are limited to examining the effect of the existence of a standalone risk committee. Hence, the main purpose of this study is to examine the effect of banks’ board risk committee composition on the risktaking behaviour of deposit money banks in Nigeria. The study used a sample of twelve deposit money banks listed on the Nigerian Exchange Group (NGX) from 2009 to 2020. Data were analysed using DriscollKraay’s Robust Standard Errors for Panel Regressions with Cross-Sectional Dependence (SCC) model to address heteroskedasticity and cross-sectional dependence. The results showed that risk committee independence and financial expertise reduce risk-taking. It, therefore, showed that the independence and financial expertise of the risk committee provide the needed competency and independence to effectively monitor risk-taking. The study, therefore, recommends, among others, the review of the composition of the board risk committee to reflect independence and expertise. The study differs from other studies by examining risk committee composition rather than its existence.