Risk governance, market competition and operational risk disclosure quality: a study of the ASEAN-5 banking sector

This paper investigates the impact of risk governance and market competition on banks’ operational risk disclosure (ORD) quality (total and voluntary), in ASEAN-5 (Association of South East Asia Nations) banking sector. Using 285 firm-years observations encompassing the period 2010-2014 for risk governance indexes, we investigate the moderating effects of market competition, relative to total risk governance practices, on banks’ ORD quality. The result of the panel data analysis show that there is a substitution effect of competition, which could reduce the adverse consequences of weak risk governance practices. However, governance factors, such as the Chief Risk Officer’s (CRO) role and independence, as well as the risk communication system decrease voluntary ORD quality. The findings have implications for the role of the financial regulator in using market as an effective mechanism to replace the bank's weak risk governance, thus encouraging banks to improve the ORD quality. The study contributes to existing knowledge by providing new empirical insights on the debates about the complementary or substitutionary role of competition policies and corporate governance practices.