Governance and Risk-Taking in GCC Banks: Evidence from the SRISK-Entropy Model

This study looks at how banks' internal governance systems affect different risk-taking behaviors. It focuses on long-run expected marginal shortfall (LRMES), entropy risk and return (ERR), and leverage (LVG). We conducted the analysis using a panel dataset for GCC banks from 2010 to 2022. Our results show that smaller boards are associated with higher levels of risk, particularly in LRMES and ERR. A smaller number of directors is associated with increased risk, while higher board presence promotes risk-taking. Board member experience reduces leverage but increases systemic risk. Intensive stakeholder participation enhances LRMES but does not significantly impact ERR or LVG. Decreased governance pillar scores (GPS) are associated with elevated risk levels. Robust internal governance procedures, especially regarding board composition and expertise, substantially influence banks' risk appetite, resulting in heightened systemic risk.