The Impact of Governance on Bank Risk: The Case of Tunisia

Purpose: This study examines the impact of corporate governance on bank risk in the Tunisian banking sector.Given the nature of banking activities, particularly deposit-taking and lending, banks are inherently exposed to various forms of risk that may affect their financial stability and performance.Corporate governance provides the institutional framework through which banks are directed, controlled, and held accountable, and may therefore play an important role in mitigating or influencing bank risk.Design/Methodology/Approach: The study employs two static panel-data models to investigate the relationship between corporate governance mechanisms and bank risk.The empirical analysis is based on a sample of 11 Tunisian banks over the period 2016-2025.Bank risk is measured using two indicators: non-performing loans (NPL) and the Z-score.The governance variables considered include gender diversity, board size, board independence, audit committee size, and ownership structure.Findings: The results indicate that several corporate governance mechanisms significantly affect bank risk in Tunisia.In particular, gender diversity, board size, and board independence have significant effects on bank risk, as measured by both NPL and the Zscore.In contrast, audit committee's size and ownership structure do not have a statistically significant effect on bank risk.Originality/Value: The study contributes to the literature on corporate governance and bank risk by providing empirical evidence from the Tunisian banking sector over a recent ten-year period.The findings highlight the importance of board characteristics, particularly gender diversity, board size, and board independence, in understanding variations in bank risk.