Determinants of Bank Risk-Taking: The Role of Regulation, Competition, and Financial Disclosure
Keywords:
Regulatory Stringency, Market Competition, Risk-Taking, System-GMM, Iraqi Banking SectorAbstract
This study aimed to examine the determinants of risk-taking behavior among Iraqi commercial banks by assessing the effects of regulation, competition, financial disclosure, bank-specific characteristics, macroeconomic conditions, and institutional quality. This study employed a quantitative causal-explanatory design using a dynamic panel-data framework. The study population included licensed Iraqi commercial banks operating between the first quarter of 2010 and the fourth quarter of 2024. After data screening, the final unbalanced panel included 38 commercial banks and 2,036 bank-quarter observations. Bank-level data were extracted from audited quarterly financial statements, while regulatory and sector-level indicators were obtained from Central Bank of Iraq reports. Macroeconomic variables, including real GDP growth, inflation, exchange-rate volatility, and oil-price volatility, were collected from international databases. Institutional quality indicators were also incorporated. Data were analyzed using descriptive statistics, correlation analysis, static panel regressions, and dynamic System-Generalized Method of Moments estimation. Semi-structured expert interviews were used only to contextualize the quantitative findings. The inferential results showed that regulatory intensity had a significant negative effect on bank risk-taking in both static and dynamic models. Financial disclosure quality, capital adequacy, liquidity, profitability, and institutional quality also significantly reduced risk-taking. In contrast, banking competition pressure, bank size, inflation, exchange-rate volatility, and oil-price volatility significantly increased risk exposure. The dynamic System-GMM results confirmed strong persistence in bank risk-taking over time. Institutional quality significantly strengthened the risk-reducing effect of regulation, while financial disclosure significantly weakened the risk-enhancing effect of competition. Ownership-based robustness analysis indicated that privately owned banks were more sensitive to competition-driven risk, whereas foreign-affiliated banks benefited more strongly from disclosure discipline. The study concludes that bank risk-taking in Iraq is shaped by the interaction of regulatory enforcement, competitive pressure, disclosure transparency, internal financial resilience, institutional quality, and macroeconomic instability. Strengthening prudential regulation alone is insufficient unless accompanied by improved disclosure standards, stronger governance mechanisms, and more credible institutional enforcement.
References
[1] C. Barra and N. Ruggiero, "Bank-specific factors and credit risk: Evidence from Italian banks in different local markets," Journal of Financial Regulation and Compliance, vol. 31, no. 3, pp. 316-350, 2023. [Online]. Available: https://doi.org/10.1108/JFRC-10-2022-0096.
[2] B. N. Ashraf, C. Zheng, C. Jiang, and N. Qian, "Capital regulation, deposit insurance and bank risk: International evidence from normal and crisis periods," Research in International Business and Finance, vol. 52, p. 101188, 2020, doi: 10.1016/j.ribaf.2020.101188.
[3] A. K. Kashyap, D. P. Tsomocos, and A. P. Vardoulakis, "Optimal bank regulation in the presence of credit and run risk," Journal of Political Economy, vol. 132, no. 3, pp. 772-823, 2024, doi: 10.1086/726909.
[4] W. Miao, Y. Ma, and H. Xu, "Capital regulation, regulatory avoidance, and bank systemic risk," International Review of Financial Analysis, vol. 100, p. 104002, 2025, doi: 10.1016/j.irfa.2025.104002.
[5] X. Zhang, F. Li, and J. Ortiz, "Internal risk governance and external capital regulation affecting bank risktaking and performance: Evidence from PR China," International Review of Economics & Finance, vol. 74, pp. 276-292, 2021, doi: 10.1016/j.iref.2021.03.008.
[6] S. Jallali and F. Zoghlami, "Does risk governance mediate the impact of governance and risk management on banks' performance? Evidence from a selected sample of Islamic banks," Journal of Financial Regulation and Compliance, vol. 30, no. 4, pp. 439-464, 2022, doi: 10.1108/JFRC-04-2021-0037.
[7] I. Ernaningsih, "Competition, regulation, and systemic risk in dual banking systems," International Review of Economics & Finance, 2024, doi: 10.1016/j.iref.2024.03.078.
[8] A. I. Hunjra, M. Hanif, R. Mehmood, and L. V. Nguyen, "Diversification, Corporate Governance, Regulation and Bank Risk-Taking," Journal of Financial Reporting and Accounting, vol. 19, no. 1, pp. 92-108, 2020, doi: 10.1108/jfra-03-2020-0071.
[9] E. Scannella and S. Polizzi, "How to Measure Bank Credit Risk Disclosure? Testing a New Methodological Approach Based on the Content Analysis Framework," Journal of Banking Regulation, vol. 22, no. 1, pp. 73-95, 2020, doi: 10.1057/s41261-020-00129-x.
[10] H. Mukhibad, A. Nurkhin, and A. Rohman, "Corporate governance mechanism and risk disclosure by Islamic banks in Indonesia," Banks and Bank Systems, vol. 15, no. 1, pp. 1-10, 2020, doi: 10.21511/bbs.15(1).2020.01.
[11] R. I. Oghuma and A. O. Garuba, "Corporate governance and risk disclosures in Nigerian banks," Indian Journal of Commerce and Management Studies, vol. 12, no. 1, pp. 19-32, 2021, doi: 10.18843/ijcms/v12i1/03.
[12] A. K. Kyari, F. A. Tahir, and B. Z. Waziri, "Roles of audit committee in corporate risk disclosure: A study of listed Nigerian commercial banks," Researchgate, vol. 1, no. 1, pp. 2705-1943, 2020. [Online]. Available: https://www.researchgate.net/profile/Adam-Kyari-3/publication/366158625_ROLES_OF_AUDIT_COMMITTEE_IN_CORPORATE_RISK_DISCLOSURE_A_STUDY_OF_LISTED_NIGERIAN_COMMERCIAL_BANKS/links/6393bcdd11e9f00cda3265c9/ROLES-OF-AUDIT-COMMITTEE-IN-CORPORATE-RISK-DISCLOSURE-A-STUDY-OF-LISTED-NIGERIAN-COMMERCIAL-BANKS.pdf.
[13] S. S. Malahim, "The Relationship Between the Risk Disclosure and Risk Management Committee on Banks Value: Empirical Evidence From Jordan," International Journal of Professional Business Review, vol. 8, no. 3, p. 0572, 2023, doi: 10.26668/businessreview/2023.v8i3.572.
[14] J. R. Prisadi and A. Firmansyah, "Risk Disclosure and Earnings Quality in Indonesia Banking Industries: Fair Value, Diversification, Financial Stability," Riset Akuntansi Dan Keuangan Indonesia, pp. 282-298, 2022, doi: 10.23917/reaksi.v7i3.18410.
[15] E. Karyani, O. Kolade, and S. A. Dewo, "Risk Governance, Market Competition and Operational Risk Disclosure Quality: A Study of the ASEAN-5 Banking Sector," The Journal of Operational Risk, 2021, doi: 10.21314/jop.2021.004.
[16] S. I. Mohd Amin and A. Abdul-Rahman, "The Role of Regulation in Banking: Liquidity Risk Perspective," Interdisciplinary Journal of Management Studies, vol. 13, no. 3, pp. 391-412, 2020.
[17] S. Kashyap and E. Iveroth, "Transparency and accountability influences of regulation on risk control: the case of a Swedish bank," Journal of Management and Governance, vol. 25, no. 2, pp. 475-508, 2021, doi: 10.1007/s10997-020-09550-w.
Downloads
Published
Submitted
Revised
Accepted
Issue
Section
License
Copyright (c) 2025 Jinan Haleem Sharhan, Ezatollah Abbasian, Islam Fakher (Author)
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
