CEO power and bank risk nexus: Evidence from commercial banks in Uganda

Abstract

This study aimed to establish the nexus between CEO power and bank risk. Previous studies on how CEO power affects risk-taking have produced mixed results. Some studies show that CEO power reduces risk, while others show the reverse. This lack of conclusive findings motivated this study. This study used secondary data from a sample of 14 commercial banks in Uganda covering a period from 2010 to 2020. System GMM was used to establish the relationship between variables, while ARDL was used to infer causality. Findings show that commercial banks with powerful CEOs have lower risk. Such powerful CEOs have prestige power, are internally hired, have ownership, and have served for more than 4 years up to 7 years, and hence possess expert power. We further found a long-run positive relationship between previous bank risk and current bank risk, as well as a causal relationship between CEO power and bank risk. In case there is a need to reduce bank risk in Uganda, making adjustments in CEO power will help. It may also be necessary for persistent adjustment and implementation of decisions and policy actions, if bank risk is to be minimized.

Keywords

• ceo power
• bank risk
• z-score
• gmm
• agency theory