From Conflict to Balance: A Novel Model for Improving Corporate Governance and Risk Management
Subject Areas : Financial Economicsmahya baee 1 , علیرضا عرفانی 2 , مجید اسحاقی 3
1 - economics department in semnan university
2 -
3 - دانشگاه سمنان
Keywords: Capital adequacy, game theory, agency theory,
Abstract :
The complexity of business operations and intense competition have exacerbated the conflict of interest between managers and shareholders, commonly referred to as the agency problem. This conflict poses a barrier to achieving organizational goals and efficient risk management. Corporate governance, through the implementation of appropriate mechanisms, plays a pivotal role in mitigating such conflicts.
This study aims to improve corporate governance to enhance risk management. Using data from ten banks between 2017 and 2023 and the Generalized Method of Moments (GMM), the relationship between corporate governance components and capital adequacy was examined. Subsequently, a game was designed between the board of directors and shareholders based on the regression results. The findings reveal that institutional ownership and transparency have a positive impact, while board compensation has a negative effect on capital adequacy. Moreover, the Nash equilibrium in this game reflects a high-risk management strategy and weak corporate governance. This outcome highlights the conflict between short-term and long-term interests, where shareholders prioritize weak governance to gain higher short-term profits, whereas the board of directors, aiming for system stability, is compelled to assume greater responsibilities in risk management. The study suggests designing incentive mechanisms to improve interactions between these two groups.
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