Risk Management Committee and Bank Performance: Evidence from the Adoption of Dodd-Frank Act

43 Pages Posted: 28 Sep 2020 Last revised: 1 Dec 2022

See all articles by Mingming Ji

Mingming Ji

The Hong Kong Polytechnic University

Liangliang Jiang

Hong Kong Polytechnic University

Date Written: November 24, 2022

Abstract

We test the effect of the establishment of risk management committee on bank risk, bank loan performance and bank profitability. The Dodd Frank Act of 2010 provides us with quasi-experimental variation on risk management committee establishment that facilitates identification. We identify the risk management committee effect using an instrumental variable model based on the difference-in-differences design. We find that the establishment of risk committee has effectively reduced bank risks. In addition, risk committee member independence, more risk committee meetings, and more risk committee members are all instrumental to bank risk reduction. We also find evidence that the risk reduction effect from the risk management committee is more pronounced among asset diversified banks. Finally, the establishment of risk committee helps with loan quality improvement and firm profitability increment, which sheds light on the bright side of stringent bank regulation.

Keywords: Dodd-Frank, Risk management committee, Bank risk

JEL Classification: G21, G28, G32, G38

Suggested Citation

Ji, Mingming and Jiang, Liangliang, Risk Management Committee and Bank Performance: Evidence from the Adoption of Dodd-Frank Act (November 24, 2022). Available at SSRN: https://ssrn.com/abstract=3699957 or http://dx.doi.org/10.2139/ssrn.3699957

Mingming Ji

The Hong Kong Polytechnic University ( email )

Hung Hom
Kowloon
Hong Kong

Liangliang Jiang (Contact Author)

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

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