scholarly journals Internal controls and credit risk relationship among banks in Europe

2017 ◽  
Vol 13 (1) ◽  
pp. 25 ◽  
Author(s):  
Ellis Kofi Akwaa-Sekyi ◽  
Jordi Gené Moreno
Keyword(s):  
Credit Risk ◽  
Internal Control ◽  
Fixed Effects ◽  
Statistical Tests ◽  
Agency Problem ◽  
Internal Controls ◽  
Corporate Image ◽  
Quantitative Approach ◽  
Average Risk ◽  
Control Mechanisms

Purpose: The study purport to investigate the effectiveness of internal control mechanisms, investigate whether evidence of agency problem is found among banks in Europe and determine how internal controls affect credit risk.Design/methodology/approach: Panel data from 91 banks from 23 European Union countries were studied from 2008-2014. Hausman’s specification test suggest the use of fixed effects estimation technique of GLS. Quantitatively modelled data on 15 variables covering elements of internal controls, objectives of internal controls, agency problem, bank and country specific variables were used.Findings: There is still high credit risk in spite of measures being implemented by the European Central Bank. Banks have individual entity factors that increase or decrease credit risk. The study finds effective internal control systems because objectives of internal controls are achieved and significantly determine credit risk. Agency problem is confirmed due to significant positive relation with credit risk. There is significant effect of internal controls on credit risk with specific variables as risk assessment, return on average risk weighted assets, institutional ownership, bank size, inflation, interest rate and GDP.Research limitations/implications: Missing data prevented the use of strongly balanced panel. The lack of flexibility with using quantitative approach did not allow further scrutiny of the nature of variables. However, statistical tests were acceptable for the model used. The study has implications for management and owners of banks to be warry of agency problem because that provides incentive for reckless high risk transactions that may benefit the agent than the principal. Management must engage in actions that profile the company better and enhances value maximization. Rising default risk has tendency to impair corporate image leading to loss of reputational capital.Originality/value: The study provides the use of quantitative approach to measuring certain phenomena within the discipline of internal controls. The study adds to a previous study by same authors and confirming the agency problem in a different approach. 

The Globalisation of Corporate Governance: External and Internal Mechanisms of Control

2003 ◽  
Vol 14 (2) ◽  
pp. 125-137 ◽  
Author(s):  
Ronald Dore
Keyword(s):  
Corporate Governance ◽  
Internal Control ◽  
Good Governance ◽  
Internal Controls ◽  
One Dimension ◽  
Control Mechanisms ◽  
National Cultures ◽  
Governance Systems ◽  
Employment Systems ◽  
The One

Much of the literature on corporate governance assumes that there is one universally valid prescription for good governance—or at most assumes a single choice between pro-shareholder and pro-stakeholder prescriptions. It is, however, not only “who gets what” outcomes which have to be taken into account in choosing governance systems, but also different preconditions for effectiveness, affected by national cultures and employment systems. One dimension of variation is, the relative need for, and efficacy of, externally imposed disciplines on management on the one hand, and the internal controls of conscience and peer pressures on the other. Internal control mechanisms seem to work in community-like firms such as those of Japan. Will China turn out to have similar possibilities?

scholarly journals Internal Controls and Credit Risk in European Banking: The Basel Committee on Banking Supervision Framework Approach

2020 ◽  
Author(s):  
Ellis Kofi Akwaa-Sekyi
Keyword(s):  
Financial Crisis ◽  
Credit Risk ◽  
Internal Control ◽  
Internal Controls ◽  
Banking Supervision ◽  
Basel Committee ◽  
Operational Risks ◽  
Control Framework ◽  
Governance Practices ◽  
European Banking

Poor corporate governance practices have been cited as contributory to the 2007 global financial crisis. The chapter explores a qualitative self-regulation approach to address a major risk facing banks using the Basel Committee on Banking Supervision (BCBS) framework of internal controls. The study examines the effect of the qualitative principles of the BCBS internal control framework on credit risk. Corporate institutions use internal control frameworks to address the most operational risks, but the current study hypothesizes a possible relation with the credit risk. This research covers banks from selected EU countries covering some period before and after the 2007 financial crisis using a fixed-effect model. We report a significant relationship between board functions and activities, board structure and board monitoring, and credit risk. The results indicate that investment in high-risk assets, bank profitability and board chair being ex-CEO increases credit risk in European banking. The chapter extends the scope of a previous work that used the elements of the COSO internal control framework on a single country. This quantitative measure of qualitative constructs of the framework complements existing research that uses algorithms and simulations to study credit risk.

Matching organizational climate and control mechanisms for fast strategic change in transitional economics

2017 ◽  
Vol 30 (2) ◽  
pp. 124-141 ◽  
Author(s):  
Hao Shen ◽  
Yu Gao ◽  
Xiuyun Yang
Keyword(s):  
Organizational Climate ◽  
Internal Control ◽  
Strategic Change ◽  
Transitional Economies ◽  
Internal Controls ◽  
Financial Control ◽  
Control Mechanisms ◽  
Open Communication ◽  
Content Type ◽  
The Relationship

Purpose The purpose of this paper is to explore how organizational climate impacts the speed of strategic change (SSC) for firms in transitional economies and whether if the effects were contingent on internal control mechanisms. Design/methodology/approach A theoretical model including five constructs is developed. The questionnaire survey is deployed to scale main constructs, including organizational climate, such as open communication and hierarchical bureaucracy, internal controls such as strategic and financial control, and SSC. The moderation regression method in five steps is employed to test all hypotheses using the survey data from the 120 sampled Chinese firms. Findings The findings show that open communication has a positive effect on SCC, whereas hierarchical bureaucracy has a negative effect on SSC. Furthermore, strategic control positively moderates the relationship between open communication and SSC but negatively moderates the relationship between hierarchical bureaucracy and SSC; meanwhile, financial control negatively moderates the relationship between open communication and SSC but positively moderates the relationship between hierarchical bureaucracy and SSC. Originality/value This research integrates organizational climate and internal control mechanisms into the framework of strategic change to investigate how firms achieve fast strategic change through aligning organizational climate with proper organizational control mechanisms. The findings advance the authors’ understanding of the organizational climate, internal controls, and strategic change literature, and offer valuable managerial insights for managers in situations when strategic change is of central importance in the transitional economies.

scholarly journals INFLUENCE OF INTERNAL CONTROLS ON FINANCIAL PERFROMANCE OF DAIRY COOPERATIVE SOCIETIES IN MERU COUNTY, KENYA

2021 ◽  
Vol 8 (8) ◽  
pp. 748-754
Author(s):  
Emmanuel Nyaga ◽  
Lucy Kiganane ◽  
Moses Gweyi
Keyword(s):  
Financial Performance ◽  
Internal Control ◽  
Response Rate ◽  
Internal Controls ◽  
Coefficient Of Determination ◽  
P Value ◽  
Control Mechanisms ◽  
Linear Regression Models ◽  
Descriptive Research ◽  
Controls Systems

Internal control systems have been a challenge to the performance of Dairy Cooperative Societies in Kenya. Incidences of total disregard to rules and procedures, adherence to cooperative management regulations have been on the rise. The ability of the management to adhere to the internal controls systems is of importance and it’s bound to affect the financial performance of the societies. The purpose of this study was to determine influence of internal control on financial performance of Dairy Cooperative Societies. The study was restricted to Dairy Cooperative Societies licensed to operate in Meru County. . The study adopted a descriptive research design and made use of purposive sampling to generate a sample of 72 respondents. A questionnaire was utilized to collect data from the respondents. Data was analyzed and evaluated through the use of descriptive statistics; standard deviation, mean and percentages, and made use of ordinary linear regression models to generate the size of effects of independent variables on the dependent variable. Analyzed data was presented in tables and pie charts. The response rate of the administered questionnaires stood at 88.88%. This response rate was found to be sufficient for inferential statistical analysis. The coefficient of determination indicated that internal control contributed 65.7% of the variation in financial performance as explained by coefficient of determination which stood at 0.657. The p-value and regression coefficient internal control generated after running the regression model was (β= 0.232, p = 0.026). These results indicate that internal controls positively and significantly influenced the financial performance of Dairy Cooperative Societies in Meru County. This study therefore, recommends the implementation of internal control mechanisms in all Dairy Cooperative Societies in Meru County.

scholarly journals IPTEKS PENGENDALIAN INTERNAL DALAM MEMINIMALKAN RESIKO KREDIT BERMASALAH PADA LEMBAGA PEMBIAYAAN

2018 ◽  
Vol 2 (02) ◽  
Author(s):  
Saskya Clarisa ◽  
Steven J. Tangkuman
Keyword(s):  
Control System ◽  
Credit Risk ◽  
Internal Control ◽  
Internal Controls ◽  
Internal Control System ◽  
Finance Company ◽  
Operational Activities ◽  
A Company

PT. FIFGROUP as a company engaged in financing services is a company whose main source of profit comes from interest on community loans. Therefore the main problem that is often faced for a finance company is bad credit, which is where consumers do not smoothly make installment payments that cause losses, so that the company must think hard to reduce the credit risk so that the company's operational activities can run well. Therefore the internal control system at the company is very important, especially in terms of internal control of credit. The purpose of this study is to find out the internal controls that are applied in the company through the process of credit submission by consumers to billing to minimize credit risk.Keyword : internal control, credit risk

Internal Controls and Credit Risk Among Commercial Banks Listed in Nairobi Securities Exchange, Kenya

2020 ◽  
Vol 2 (2) ◽  
pp. 77-92
Author(s):  
Jared Ochieng Agang ◽  
Charity Njoka
Keyword(s):  
Risk Assessment ◽  
Credit Risk ◽  
Internal Control ◽  
Commercial Banks ◽  
Secondary Data ◽  
Target Population ◽  
Internal Controls ◽  
Investment Banks ◽  
Monitoring And Control ◽  
Income Loss

Inappropriate credit policies, as well as inadequate, limited institutional capacity by Kenya's financial sector, led to several of the banking institutions collapsing over what was termed as poor management of credit risks which resulted to increased amounts of loans that were not being serviced. The main aim of the research project was to establish the effects of internal controls on credit risk among the banks listed in NSE. The distinctive goals included to find out the influence of internal control, assessing risk ,activities in control and monitoring among banking organizations listed in NSE. The study was guided by capital asset pricing model, agency theory and modern portfolio theory. The study adopted a casual descriptive research design. The target population encompassed the eleven listed banks in Nairobi Securities Exchange where cencus was done. Both primary and secondary data were collected. The questionnaires were applied to gather data. The diagnostic tests include multicollinearity and normality. Data was evaluated using both descriptive and inferential statistics using SPSS. The findings show that there is a positive and significant link between monitoring and credit risk. The study found that assessment of the risk has a significant way on credit risk and that internal controls that are not strong such as poor ethical values have stimulated the involvement to fraud that leads to income loss and misuse of the income received. The study concluded that risk assessment P=.000 < 0.05, control activities P=.000 < 0.05, monitoring and control environment P=.001 < 0.05 have a significant effect on credit risk among commercial banks listed in NSE. The study recommends that banks should implement proper risk assessment to guide their operations and also implement efficient control activities to guide their operations. Further, the study recommends that banks’ monitoring approaches should be guided towards effective tasks and achieving the goals of the organization. In regard to propositions for more studies, this investigation could be further advanced by looking at the effect on credit risk management in other institutions such as investment banks and microfinances. It will help in the management of credit unions, Savings and Loans Associations, investment banks and microfinances in Kenya.

The Severity of Internal Controls over Financial Reporting Deficiencies: Differences among Types and Industries

2014 ◽  
pp. 55-77
Author(s):  
Tatiana Mazza ◽  
Stefano Azzali
Keyword(s):  
Information Technology ◽  
Financial Reporting ◽  
Internal Control ◽  
Service Industry ◽  
Listed Companies ◽  
Internal Controls ◽  
Service Companies ◽  
Finance Industry ◽  
Material Weaknesses ◽  
Fixed Assets

This study analyzes the severity of Internal Control over Financial Reporting deficiencies (Deficiencies, Significant Deficiencies and Material Weaknesses) in a sample of Italian listed companies, in the period 2007- 2012. Using proprietary data the severity of the deficiencies is tested for account-specific, entity level and information technology controls and for industries (manufacturing and services vs finance industries). The results on ICD severity is compared with one of the most frequent ICD (Acc_Period End/Accounting Policies): for account-specific, ICD in revenues, purchase, fixed assets and intangible, loans and insurance are more severe while ICD in Inventory are less severe. Differences in ICD severity have been found in the characteristic account: ICD in loan and insurance for finance industry and ICD in revenue, purchase for manufacturing and service industry are more severe. Finally, we found that ICD in entity level and information technology controls are less severe than account specific ICD in all industries. However, the results on entity level and information technology deficiencies could also mean that the importance of these types of control are under-evaluated by the manufacturing and service companies.

Pengaruh Sistem Pengendalian Internal Pemerintah dan Kompetensi Pegawai Terhadap Kinerja Instansi Pemerintah Kabupaten Karimun

2020 ◽  
Vol 5 (1) ◽  
pp. 101-106
Author(s):  
Doni Putra Utama
Keyword(s):  
Control System ◽  
Control Systems ◽  
Internal Control ◽  
Statistical Tests ◽  
Government Agencies ◽  
Government Performance ◽  
Significant Positive Effect ◽  
Internal Control System ◽  
Employee Competencies ◽  
Positive Effect

This research is a causality study with the title "Effect of Government Internal Control Systems and Employee Competence on the Performance of Government Agencies in Karimun Regency." The purpose of this study was to determine the effect of the implementation of the Government's Internal Control System on the performance of Karimun Regency government agencies and to determine the effect of employee competence on the performance of Karimun Regency government agencies. Data collection using a questionnaire where the questionnaire contained questions about the Government's Internal Control System, employee competencies and agency performance. Data were tested using multiple linear regression statistical tests. Based on the results of the study, it can be concluded that the governmental internal control system has a significant positive effect on Government Agency Performance with the results of statistical tests that show a sig value of 0.016 <0.05 (alpha 5%). Employee Competency has a significant positive effect on Government Performance with the results of statistical tests showing a sig value of 0,000.

Effect of Financial Control Mechanisms on Performance of Income Generating Units in Selected Public Universities in Kenya

2019 ◽  
Vol 3 (V) ◽  
pp. 286-304
Author(s):  
Shadrack Musunkui Towett ◽  
Isaac Naibei ◽  
Williter Rop
Keyword(s):  
Risk Management ◽  
Internal Control ◽  
Public Universities ◽  
Management Strategies ◽  
Internal Audit ◽  
Simple Random Sampling ◽  
Target Population ◽  
Control Measures ◽  
Financial Control ◽  
Control Mechanisms

In an attempt to bridge the gap between the budgetary allocations and actual expenditures most universities have started income generating units with the aim of boosting their operational expenses. Whereas there is the potential of the use of Income Generating Units (IGUs) to generate additional funds, most universities still experience challenges in full implementation and realization of the revenue goal. This study therefore sought to determine the financial control mechanisms affecting performance of income generating units among selected public universities. The study sought to determine the effect of internal controls, credit policies, financial risk management and internal audit on performance of income generating units in selected universities. Targeted population was all the 290 employees in the IGU departments of selected public universities. The respondents were sampled using simple random sampling so as to enable equal representation of the target population without any biasness. Data collection was done using the questionnaire to ensure sufficient data was collected from the respondents. Descriptive statistics assisted in the determination of respondent’s views and opinions on every variable. Qualitative data was analysed using content analysis into meaningful, precise and comprehensive statements and presented in quotations. Data analysis was done using SPSS version 21 and data presented in form of figures and tables. The study ensured that all ethical considerations were considered by the study. The findings were that most employed Income Generating Units in Public Universities were Collection of rental fees, Evening and executive programs and Trainings of both short and long courses while the least was established to be Sales of memorabilia and books. All the financial control mechanism investigated namely internal audit, internal control measures, risk management strategies and credit policies had large extents of adoption in the selected universities. The results of the regression analysis showed that the financial control mechanisms investigated had a significant positive relationship on performance of the IGUs. Specifically, 47% of the variation of the performance of IGUs was established to be explained by the studied factors. The study concluded that the performance of the IGUs among the selected public universities was largely accounted for by the implemented financial control measures. Therefore effective financial control mechanisms is concluded to lead to better IGU performance whereas shortcomings in the financial control mechanisms is concluded to lead to diminished returns in the IGUs. The study recommended that the management in charge of the IGU department in the public universities to prioritize the formulation, implementation and monitoring of financial control mechanisms in the IGUs. To facilitate effective financial controls, the study recommended that the management especially those in the audit section to conduct regular checks and inspections on the IGUs. Additionally, frequent reforms were recommended to address the shortcomings experienced in integrating financial control measures in IGUs.

PENGARUH PDRB DAN UKURAN TERHADAP INTERNAL CONTROL PEMERINTAH DAERAH DENGAN PAD SEBAGAI INTERVENING

ProBank ◽  
2018 ◽  
Vol 3 (1) ◽  
pp. 64-75
Author(s):  
Prima Utama Wardoyo Putro
Keyword(s):  
Internal Control ◽  
Central Government ◽  
Control Variable ◽  
Secondary Data ◽  
Internal Controls ◽  
Regional Government ◽  
Path Testing ◽  
Size Growth ◽  
Fiscal Balance ◽  
Research Populations

Law No 32 year on 2004 about Regional Government and Law No 33 years on 2004 about Fiscal Balance between the Central Government and Regional Government are a new regulation relating to the implementation of regional autonomy in Indonesia. Giving the authority to manage its own region required an internal control system that can monitor of all by central government. The problem in this study is: Is there are any influence between growth, size, and PAD through Regional Government Internal Controls weakness with PAD as an intervening variable. The research populations are the financial statements and reports on the results of the entire province in Indonesia totaling 33 provinces. Source of data which are used are secondary data, and data collection by using the documentation method. The results of partial testing showed that PAD and Growth have significant affects to the Internal Controls, whereas size has not significant effect. Simultaneous testing showed a significant effect between the independent and dependent variables. The test results path testing showed that growth has no significant effect to internal control through PAD as an intervening variable and size has a significant effect to internal control variable through PAD as an intervening variable. The results of determinant coefficient by simultan test amount 28.7%. Its mean that Internal Control can be explained by Growth, Size and PAD, the remaining 71.3% influenced by factors other than study. Keyword: Internal Control, Size, Growth, and Income

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