Chief executive officer power, bank risk and corporate governance: Does board independence matter?

Corporate governance failures in the financial sector have highlighted the need to strengthen the role played by boards of directors in supporting the actions and decisions of chief executive officers (CEOs) (Zulfikar et al., 2020). Against this background, this study examines the moderating role of board independence in the relationship between CEO power and bank risk, as a corporate governance mechanism. Applying the system generalised method of moments (GMM) model on the secondary data of 14 listed and unlisted commercial banks in Uganda from 2010 to 2020, we found that the moderating effect of board independence in the relationship between CEO power and bank risk was positive and significant for prestige power and the CEO being internally hired. Further, it was established that bank CEOs should serve for between four and seven years to reduce or contain bank risk, as this period has been noted to be adequate to oversee operations without increasing institutional risk. Our findings imply that commercial banks in Uganda should appoint strong independent boards of directors that can support the CEO’s strategy, as their presence positively impacts the relationship between CEO power and bank risk. Our paper thus contributes to the board governance debate in scholarly literature.