The Impact of Corporate Governance on Financial Risk

Given the significant role and contribution of banking system to the economy, the importance of corporate governance and hence the cruciality of the risk management in banking industry, studies exclusively on the impact of corporate governance mechanisms on banks' financial risk management are small in less developed countries and in Ethiopia it is an ignored area of research. This study investigates the impact of internal corporate governance mechanisms on financial risk of selected private commercial banks in Ethiopia over the period of 2007 to 2016. From the fixed effect panel data regression; the result shows that Frequency of board meetings significantly and positively influences the financial risk of sample private commercial banks in Ethiopia and justifies that the boards of directors increased their meeting frequency when banks face major challenges. In addition to this, availability of risk committee on the board appears to significantly impact to credit risk, but not liquidity risk. However, the sign is positive with both risk measures and discusses that the result implies that at times when there is credit distress banks are more likely to have a risk committee in it.