Moderating Role of Risk Management between Risk Exposure and Bank Performance: Application of GMM Model

Abstract

This paper assessed risk management as a moderating variable between risk exposure and a bank’s performance. A quantitative research methodology was employed to collect secondary data from 20 licensed banks in Ghana from 2013 to 2022, giving a total of 200 observations for this study. The study employed the dynamic panel System Generalized Method of Moments to assess the effect of risk exposure on the bank’s performance in Ghana. The Generalized Method of Moments was employed in this research to control the issues of endogeneity and unseen heterogeneity. Secondly, the result from the moderating analysis showed that risk management moderates the negative relationship between risk exposure and the bank’s performance. The findings highlight the importance of strengthening the corporate governance structure to moderate or enhance the relationship between risk management and the bank’s performance. The study recommended that the banks in Ghana ought to be more proactive in their assessment and management of the bank’s credit risk and liquidity risk to mitigate their adverse effect on the bank’s performance.