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This paper investigates the impact of risk governance and market competition on banks’ operational risk disclosure (ORD) quality (total and voluntary) in the Association of Southeast Asian Nations (ASEAN-5) banking sector. Using 285 firm-year observations encompassing the period 2010–14 for risk governance indexes, we investigate the moderating effects of market competition, relative to total risk governance practices, on banks’ ORD quality. The results of our panel data analysis show that there is a substitution effect of competition, which could reduce the adverse consequences of weak risk governance practices. However, governance factors – such as the chief risk officer’s (CRO’s) role and independence, and the risk communication system – decrease voluntary ORD quality. These findings have implications for the role of the financial regulator in using market competition as an effective mechanism to replace banks’ weak risk governance, thus encouraging banks to improve their ORD quality. This study contributes to existing knowledge by providing new empirical insights into ongoing debates about the complementary or substitutionary role of competition policies and corporate governance practices.

This paper examines the impact of Sharia supervisory board (SSB) and governance structures on the extent of operational risk disclosures (ORDs), using a sample of 63 Islamic banks from 10 (i.e., Bahrain, Egypt, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, and the UAE) countries in the Middle East and North Africa (MENA) region for the fiscal years 2006 to 2013. Drawing on Sharia compliance, Islamic banking and corporate governance literature, our findings are as follows. We find that SSB, block ownership, board independence, and country-level governance quality are statistically significant and positively associated with ORDs. Our results are robust when controlling for several bank- and country-level variables. Our study has implications for policy-makers and regulators in the MENA region with respect to the development and implementation of SSB and governance mechanisms that can improve operational risk disclosures. Finally, the findings highlight the need to enhance current understanding of SSB structures and governance mechanisms that can best help Islamic banks towards engaging in effective compliance with recent governance and accounting reforms.Keywords: Operational Risk Disclosure; Sharia supervisory board; Corporate Governance; Country Governance; Islamic Banks; MENA countriesJEL classification: G21, G32, G34, G38, M48