How CEO Extreme Overconfidence Shapes the Governance–Risk Relationship: Evidence from the Tunisian Banking Sector

This study examines the impact of corporate governance mechanisms on bank risk, focusing on the moderating role of CEO extreme overconfidence. Using a sample of all commercial banks in Tunisia from 2000 to 2021, the study explores how ownership structure and board characteristics influence three key types of risk: insolvency risk, operational risk, and equity risk. The findings show that managerial ownership and larger boards generally reduce insolvency and operational risk, while ownership concentration and excessive board independence may increase equity volatility. When CEO overconfidence is considered, it weakens the risk-reducing effect of governance on insolvency risk but strengthens its impact on operational risk. Equity risk, however, remains largely unaffected. A governance quality score is used to confirm these results, highlighting the limitations of structural governance when leadership traits are not considered. The study underscores the need to integrate behavioural assessments into governance practices to better manage bank risk.