نظارت کمیته ‌های حسابرسی به پذیرش ریسک Audit committees’ oversight of bank risk-taking

۱٫ Introduction To maximize the value of their equity, bank shareholders have incentives to encourage management to engage in excessive risktaking activities. This is because high risk of bank assets increases the value of deposit insurance and adds no extra cost to shareholders (Merton, 1977). Bank risk-taking has been more valuable since the mid-1980s, when bank charter value, which is regarded as an offset against the value of excessive risk-taking, decreased signifi- cantly due to deregulation and increased competition. Since the main duty of boards of directors is to protect shareholders’ interests, high quality boards may, through the oversight of risk management, encourage bank management to take excessive risk in order to benefit shareholders. As a result, high quality board governance may increase banks’ excessive risk-taking. Nevertheless, high quality boards should also constrain excessive risk-taking activities that benefit management themselves at the expense of shareholders. Moreover, directors are concerned with monetary and reputational losses from lawsuits that are more likely to occur when banks take high risk. Due to the recent financial crisis, regulators have strengthened the oversight role of boards of directors in risk assessment and risk management. To protect themselves, high quality boards have incentives to seek high regulatory compliance by discouraging management to engage in excessive risk-taking. Those boards may act more conservatively to avoid lawsuits arising from risk-taking. Thus, it is also likely that high quality board governance decreases banks’ excessive risk-taking. There exists limited research on the effect of board governance quality on bank risk-taking. Pathan (2009) documents a negative association between board independence and bank risk, suggesting that high quality board governance may lead to low risk-taking. However, Minton et al. (2010) find that financial expertise of independent directors on the board is positively associated with bank risk, which indicates that high quality board governance may lead to high risk-taking. These mixed findings necessitate further research on this issue. More importantly, boards of directors usually play an oversight role through their operating committees such as the audit committee. Although audit committees are regarded as having the responsibility for the oversight of risk management, there is little evidence on how audit committee effectiveness affects bank risk management. This study aims to fill in this void. First, our study examines whether audit committee effectiveness is associated with bank risk-taking. Given that bank risktaking is extensively influenced by the recent financial crisis, we are interested in the 2008–۲۰۱۰ period. Using a sample of 298 firm-year observations over the period, we find that audit committee members’ board tenure is negatively associated with bank risk measured by total risk or idiosyncratic risk. We also find that audit committee members’ busyness is positively associated with bank risk measured by total risk or idiosyncratic risk. Since directors’ long board tenure or low busyness reflects high governance quality, our findings suggest that high audit committee effectiveness may lead to low bank risk-taking. Second, our study examines whether audit committee effectiveness is associated with the relationship between firm performance and bank risk. Overall, we find that firm performance is more positively associated with bank risk when banks have long board tenure, more female audit committee members, or large size audit committees. These results are consistent with the notion that high audit committee effectiveness may lead to high risk management effectiveness. However, this notion is challenged by other findings that firm performance is more positively associated with bank risk when banks have busy audit committees. This study contributes to the literature in the following ways. First, our study extends the limited research on the relationship between board governance quality and bank risk-taking. Pathan (2009) and Minton et al. (2010) only examine board characteristics. Unlike their studies, we investigate the role of audit committees in monitoring bank risk and risk management. We provide novel evidence that audit committee effectiveness may affect bank risk-taking and risk management effectiveness. Second, this study also adds to a stream of research on the oversight role of audit committees. Prior research in this area (e.g., Klein, 2002; Bedard et al., 2004; Abbott et al., 2004; Karamanou and Vafeas, 2005) examines the role of audit committees in monitoring the financial reporting process, whereas our study focuses on audit committees’ oversight role of risk management. As regulators have strengthened the risk oversight of board governance after the recent financial crisis, it is important to explore how effectively audit committees can oversee bank risk management. The rest of the paper is organized as follows. Section 2 introduces background and reviews related studies. Section 3 develops hypotheses. Section 4 discusses research design. Section 5 conducts empirical analyses. Section 6 concludes.