Governance, or corporate governance, is the overall system of rules, practices, and standards that guide a business.
Risk, or enterprise risk management, is the process of identifying potential hazards to the business and acting to reduce or eliminate their financial impact..
There were differences in credit risk, liquidity risk and operational risk in banks with different governance ratings, but not at market risk.
The effectiveness of risk management and good corporate governance implementation is needed to enable banks to identify problems early, to follow up on rapid improvements and to be more resilient to crises.
Case study of Indonesian banks The purpose of this study is to examine the relationship between corporate governance and risk management of Indonesian banks.
Implementation of good corporate governance is measured by good corporate governance composite rating, which is the result of bank's self-assessment.
Basically, risk management is conducted through risk identification, risk evaluation and measurement processes and risk management.
This study has proved that effective corporate governance implementation is able to mitigate risks that expose commercial banks, whether credit risk, market risk, operational risk and liquidity risk.
Corporate governanceidentifies the authorities and responsibilities of the board and senior management, in their respective roles, to govern the bank’s operations and structure.
Corporate governance involves the relationships among the bank’s board, management, shareholders, and other stakeholders.
