Corporate Governance Factors, Capital Regulation and Bank Risk Taking in Zimbabwe

Abstract

The study is motivated by the importance of corporate governance indicators in influencing bank risk taking and performance. It seeks to establish the relationship between shareholder power, board characteristics and executive director power as indicators of bank corporate governance and risk taking by banks in Zimbabwe. Using bank level data for the country over the period 2010 to 2017 and accounting for the effects of bank capital regulation, the study finds that more executive director power reduces bank risk taking; while strong boards raise risk taking. On the effect of shareholder power, the study finds that individual bank ownerships increase bank risk taking; with risk increasing as bank statutory capital requirements increase. The bank risk taking effect of government bank ownership is inconclusive; while an increase in statutory bank capital requirements reduces risk taking in banks that are owned by the private institutions. The study results suggest that the effects of changes in bank corporate governance and or banking sector regulations has different bank risk taking outcomes that depend on the interactions between the various governance indicators and the sector regulatory environment.