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independent supervisory authorities can prevent the increase in risk behaviors. Agoraki,
Delis, and Pasiouras (2011) obtained similar results. Barakat, Chernobai, and Wahrenburg
(2014) identified information asymmetry in operational risk announcements, which can be
reduced through stronger governance structures of financial firms. Their empirical
findings also revealed that liquidity improves with an increase in quoted depth, which is
negatively associated with information asymmetry. Their results support previous findings
reported in studies encouraging stronger governance for reducing operational risk in
financial firms (Chernobai, Jorion, and Yu, 2011; Wang and Hsu, 2013).
Substantial evidence is also available pertaining to bank holding companies (BHCs),
a subset of financial holding companies focusing on their control over banks. For
example, Demsetz and Strahan (1997) found that improved diversification of larger BHCs
does not necessarily lead to overall risk reduction, whereas asset growth does. Hirtle
(2016) found that greater public disclosure was associated with more efficient risk-taking
and higher risk-adjusted performance at BHCs. Curry, Fissel, and Hanweck (2008)
indicated that adopting Basel II for financial transparency facilitates improving market
discipline and predictions of bank risk, and reduces instances of bank risk-taking. Ellul
and Yerramilli (2013) found that strong and independent risk management functions (i.e.,
the combination of Chief Risk Officer (CRO) Present, CRO Executive, CRO-Top5, CRO
Centrality, risk committee experience, and active risk) can maintain improved
performance at BHCs during the 2007–2008 crisis period. Buston (2016) reported that the
likelihood of BHC insolvency was lower for BHCs actively practicing risk management
during the same period. By contrast, although banks are recommended to have
independent directors who are financial experts, the risk-taking activities of such directors
were associated with the underperformance of larger banks at commercial BHCs during
the crisis years (Minton, Taillard, and Williamson, 2014).
It can easily be verified that the risk indicators of the RM-BSC align with Basel II
and common risk factors for banks and FHCs such as credit risk (BCBS, 2006), legal risk
(Chavez-Demoulin, Embrechts, and Nešlehová, 2006), integration risk (Amihud and Lev,
1981; Ross, Westerfield, Jaffe, and Roberts, 2002), reputational risk (BCBS, 2006),
liquidity risk (Barakat et al., 2014), information risk (Hirtle, 2016), transactional risk or
market risk (BCBS, 2006), operational risk (BCBS, 2006), competitive risk (Kim and
Santomero, 1988; Boyd and De Nicoló, 2005), transition risk (Longstaff, Mithal, and
Neis, 2005), management risk (Ellul and Yerramilli, 2013; Buston, 2016), and leadership
risk (Minton et al., 2014). Risk factors exhibit relationships such as a positive correlation