Financial Risk and Management: An International Journal
Financial Risk and Management: An International Journal is a scholarly, peer-reviewed journal dedicated to the study of financial risk management and the development of effective strategies for mitigating risks in financial markets and institutions. Published by the Program Pascasarjana, Institut Bisnis dan Informatika Kesatuan (IBIK) in collabration with the Be Actual Research Institute (BARI), the journal serves as a platform for cutting-edge research in financial risk management, offering valuable insights for academics, professionals, and policymakers in the financial sector. The journal covers a broad range of topics related to financial risk, including credit risk, market risk, liquidity risk, operational risk, regulatory compliance, risk modeling, investment strategies, and financial crisis management. As a double-blind peer-reviewed journal, it ensures that all submitted manuscripts undergo a thorough review process to maintain the highest academic and scholarly standards. Financial Risk and Management is published biannually, with issues released in January–June and July–December. The journal publishes original research articles, case studies, theoretical contributions, and review papers that provide valuable perspectives on managing and mitigating financial risks. Its goal is to provide the academic community with a robust body of knowledge to address current challenges in risk management and enhance decision-making processes in the financial sector. The journal invites contributions from researchers, academicians, financial experts, and industry practitioners who are engaged in the field of financial risk management. Manuscripts must adhere to the journal's submission guidelines, and any articles that do not meet these requirements will be returned without review. Only those that conform to the journal’s standards will be considered for peer review and editorial evaluation. Financial Risk and Management is committed to advancing the understanding of financial risk management and its role in ensuring the stability and growth of financial markets. Through its high-quality, peer-reviewed research, the journal aims to foster innovative solutions and best practices for managing financial risks in an ever-evolving global economy.
Program Pascasarjana, Institut Bisnis dan Informatika Kesatuan (IBIK)
The Effect of Global Regulatory Fragmentation on Systemic Financial Risk
This article examines how global regulatory fragmentation affects systemic financial risk in an environment of deep financial integration, growing geopolitical tension, and rapid financial innovation. The main question is under what conditions divergent and overlapping rules across jurisdictions amplify, mute, or reshape the build-up and transmission of systemic risk. The study conducts a systematic literature review of peer reviewed work published between 2020 and 2024 that investigates links between regulatory fragmentation, financial fragmentation, and financial stability outcomes. The reviewed evidence shows that fragmented prudential and supervisory regimes are associated with segmented credit and capital markets, weaker risk sharing, and more fragile crisis transmission channels, while moderate diversity in rules can sometimes enhance competition and strengthen internal controls. Using narrative and thematic synthesis, the article compares how different strands of research conceptualize and measure fragmentation, identify transmission mechanisms, and assess policy trade-offs. The main findings highlight that the impact of fragmentation is conditional on its form, intensity, and the strength of cross border cooperation frameworks.
The Effectiveness of Machine Learning Techniques in Corporate Bankruptcy Risk Prediction
This article examines how effective machine learning techniques are in predicting corporate bankruptcy risk in a context where early warning signals are crucial for lenders, investors, and regulators to contain financial instability. The study conducts a systematic literature review of peer reviewed research published between 2020 and 2024 that applies machine learning models to corporate bankruptcy and financial distress prediction. The evidence shows that ensemble, deep learning, and sequential models generally outperform traditional statistical approaches, particularly when class imbalance is addressed and financial data are enriched with market, textual, or governance related features. The article discusses these findings through a narrative and thematic synthesis that compares algorithms, feature sets, sampling strategies, and validation designs across different countries and sectors. The main findings highlight that modelling choices and data design strongly condition performance, that interpretability and governance remain underdeveloped, and that future work should link predictive gains more clearly to tangible improvements in risk management outcomes.
Tokenization and New Forms of Payment Risk in the Digital Economy
This article examines tokenization as both a security mechanism and a source of new payment risks in the digital economy. The study synthesises recent evidence on how tokenization supports the growth of contactless cards, mobile wallets, instant transfers, and embedded finance while reshaping risk at the user, platform, and system levels. Tokenization reduces exposure of sensitive payment credentials and helps contain card not present fraud by limiting storage and transmission of primary account data within digital wallets and online platforms. At the same time, the review shows that concentration of mappings in token vaults, reliance on specialised token service providers, and complex token lifecycle management introduce fresh operational, governance, and legal vulnerabilities. The extension of token based designs into tokenised deposits, central bank digital currencies, and programmable settlement infrastructures further links tokenization to liquidity, run, and contagion risk. Overall, the article argues that tokenization should be viewed as a structural innovation that reconfigures the architecture of payment risk rather than as a narrow technical fix and for future empirical research.
Corporate Transparency, Disclosure Quality, and Their Effects on Investor Risk Perception
This article investigates how corporate transparency and disclosure quality shape investor risk perception by synthesizing evidence from a systematic literature review of peer reviewed studies on financial and non financial reporting. The review shows that timely, accurate, comparable, and decision useful disclosure reduces information asymmetry, enhances price efficiency, and supports higher stock liquidity, thereby lowering risk premiums demanded by investors. High quality reporting also mitigates downside risk by constraining earnings management and stock price crash risk, especially when accompanied by strong assurance mechanisms and effective internal control structures. Evidence on environmental, social, and governance disclosure indicates that credible sustainability reporting is associated with a lower cost of equity and more conservative capital structures, suggesting that investors view transparent firms as more resilient to regulatory and reputational shocks. At the same time, complex or boilerplate disclosure can increase processing costs and skepticism, weakening these benefits. The article concludes that investor risk perception acts as a key intervening mechanism linking transparency, market outcomes, and firms capital costs for diverse types of firms.
Copyright (c) 2025 Financial Risk and Management: An International Journal
The Role of Internal Audit in Strengthening Enterprise Risk Management Frameworks
This article examines how the internal audit function strengthens enterprise risk management frameworks through a systematic review of peer-reviewed literature. The study synthesizes conceptual, empirical, and sector-specific research that links risk governance, internal audit practices, and enterprise risk management effectiveness. Structured searches in major academic databases, guided screening, and thematic coding are used to identify how internal audit contributes to risk identification, assessment, response, and monitoring. The findings show that internal audit enhances enterprise risk management when it adopts risk-based planning, coordinates closely with senior leadership and risk management units, and evaluates the alignment between risk practices, governance structures, and strategic objectives. Evidence from private and public organizations indicates that internal audit can transform enterprise risk management from a formal framework into an embedded governance mechanism that supports performance and resilience. However, the review also reveals fragmented scholarship and limited understanding of the mechanisms through which internal audit independence, authority, and methodological rigor translate into sustained improvements in enterprise risk management quality and corporate governance outcomes across different institutional contexts.
Fintech-Based Predictive Risk Systems and Their Mitigating Effect on Fraud and Operational Risks
This article investigates how fintech-based predictive risk systems contribute to mitigating fraud and operational risks in highly digital and data-driven financial environments. It addresses the question of when and how machine-learning and analytics-driven tools move beyond improving classification metrics to actually reduce realized fraud losses, service disruptions, and compliance failures. The study draws on a systematic review of peer-reviewed articles published between 2020 and 2024 that analyze predictive models embedded in digital payments, e-commerce, platform-based finance, and related fintech services. The reviewed evidence shows that these systems consistently outperform traditional rule-based approaches, particularly when they integrate granular transactional, behavioral, and network data and operate in near real time. Through narrative and thematic synthesis, the article discusses prevailing design patterns, data sources, modelling techniques, and governance practices surrounding these systems. The main findings underline strong technical performance but fragmented governance, limited measurement of loss reductions, and the need for more integrated, proactive risk architectures around fintech-based predictive systems.
AI Governance Mechanisms in Modern Financial Risk Management Systems
This article investigates how artificial intelligence (AI) is governed within modern financial risk management systems, asking under what conditions AI-based models can enhance, rather than undermine, risk control. The study conducts a systematic literature review of peer-reviewed articles published between 2019 and 2024, focusing on governance mechanisms associated with AI applications in credit, market, liquidity, and operational risk management. The reviewed evidence shows that AI governance is still emerging and uneven, with most institutions extending traditional model risk management frameworks while struggling to address data drift, feedback loops, bias, and systemic effects. The article discusses the literature through a narrative and thematic synthesis that maps governance practices across three main dimensions: AI-specific model risk management, the use of explainable AI as a governance tool, and organizational and ethical mechanisms such as human-in-the-loop oversight and legal accountability. The main findings highlight fragmented implementation, limited empirical evaluation of effectiveness, and the need for more coherent, testable governance architectures.
The Effect of Safe-Haven Assets on Mitigating Crisis-Period Financial Risk
This study conducts a systematic literature review of research published between 2019 and 2024 on the role of safe haven assets in mitigating financial risk during crisis periods. It synthesizes evidence on traditional instruments such as gold, sovereign bonds, and reserve currencies, as well as alternative assets including cryptocurrencies, commodities, and green bonds. The review highlights that safe haven performance is highly context dependent, varying across asset classes, crisis episodes, regions, and investment horizons. Gold and high-quality government bonds generally provide the most reliable protection against severe equity market stress, whereas cryptocurrencies behave mainly as speculative assets that offer, at best, weak or episodic crisis insulation. Evidence on green bonds and other sustainable assets indicates promising but mixed protective properties that depend on market depth and the nature of the shock. The findings emphasize that investors and policymakers should treat safe haven status as conditional and dynamic, designing crisis resilient portfolios through diversified, asset specific strategies rather than relying on any single refuge across markets and risk regimes.
Cryptocurrency Volatility and Its Spillover Effects on Traditional Financial Markets
This study investigates how cryptocurrency volatility interacts with traditional financial markets using a systematic literature review of peer reviewed journal articles. The review synthesizes evidence on volatility behaviour in major cryptocurrencies such as Bitcoin and Ethereum and on return and volatility spillovers to equities, commodities, foreign exchange, and benchmark indicators of market uncertainty. The findings indicate that cryptocurrencies exhibit persistent and pronounced volatility and frequently act as net transmitters of risk, with spillovers that intensify during periods of global stress and episodes of policy uncertainty. Cross market linkages are strongest at shorter horizons and during crisis regimes, reducing the reliability of cryptocurrencies as safe haven or hedging instruments and weakening the diversification benefits of conventional assets such as gold. The study also identifies important gaps, including fragmented country specific evidence and limited multi asset perspectives, and highlights the need for dynamic, regime sensitive risk management and prudential frameworks that explicitly incorporate the evolving role of cryptocurrencies in global risk transmission. These insights provide guidance for regulators, investors, and risk managers.
The Impact of Monetary Policy Shocks on Financial Sector Risk Exposure
This study examines how monetary policy shocks influence financial sector risk exposure through a systematic literature review of empirical research. The review synthesizes evidence on how changes in policy rates and central bank balance sheet policies affect bank leverage, asset quality, funding structures, and financial stability indicators in advanced and emerging economies. The findings show that accommodative monetary policy often increases credit, market, and insolvency risk, particularly in competitive banking systems and environments with weak macroprudential regulation, while tighter policy can curb risk taking but temporarily heighten liquidity and market risk. The results also indicate that the impact of monetary policy shocks is context dependent, shaped by market structure, capitalization, policy uncertainty, and institutional frameworks. Several studies identify a transmission channel through shifts in investors’ risk appetite and cross border capital flows, which link monetary policy surprises to asset price volatility and risk taking by banks and non bank intermediaries. Overall, the review underscores the need to coordinate monetary and macroprudential policies to contain excessive risk while preserving monetary transmission.
Shadow Banking Growth and Financial Stability Risks: A Contemporary Systematic Review
This article examines how the post crisis growth of shadow banking affects financial stability in an increasingly non-bank centric financial system. It asks under what conditions non-bank financial intermediation amplifies, rather than mitigates, systemic risk, and how regulation and macroprudential policy shape these outcomes. Using a contemporary systematic review of peer reviewed studies published between 2019 and 2023, the article synthesizes evidence on the drivers of shadow banking expansion, its links with bank balance sheets, and its contribution to leverage, liquidity transformation, and interconnectedness. The discussion organizes the literature into three strands covering growth mechanisms, transmission channels to bank soundness and systemic risk, and the design and effectiveness of regulatory and macroprudential responses. The main findings show that shadow banking can provide useful credit and liquidity services, but that its stability implications depend critically on funding structures, cross sector linkages, and the extent to which prudential oversight extends beyond traditional banks.
Copyright (c) 2024 Financial Risk and Management: An International Journal
Inflation Risk Dynamics and Its Effects on Corporate and Market Behavior
This article investigates how inflation risk dynamics influence corporate and market behavior in a context of renewed inflation volatility and heightened macroeconomic uncertainty. The study conducts a systematic literature review of peer reviewed articles published between 2019 and 2023, examining how inflation levels, expectations and uncertainty affect firms’ investment, pricing, employment and financing decisions, as well as the pricing of assets in equity and bond markets. The synthesized evidence shows that persistent and uncertain inflation tends to depress real investment, encourage caution toward irreversible projects and shape managers’ pricing and wage setting strategies. On the financial side, the review finds that inflation risk is a priced factor, generating time varying risk premia, sector specific valuation effects and regime dependent hedging properties across asset classes. The article discusses these results by organizing studies into corporate and market focused strands and concludes that inflation risk must be analyzed within an integrated macro financial framework linking firm decisions, monetary policy and asset pricing.
Microfinance Risks and Sustainability Challenges: A Literature Review
This article reviews recent evidence on how financial, social, and institutional risks shape the sustainability of microfinance institutions in an era of expanding financial inclusion and competitive pressure. The study uses a systematic literature review of peer reviewed journal articles published between 2019 and 2023 to consolidate findings on portfolio quality, financial performance, client over-indebtedness, governance, and emerging environmental and digital risks. The results show that resilience depends on the interaction between core financial indicators, such as portfolio quality and cost efficiency, and less visible social risks related to multiple borrowing, coercive collection, and borrower vulnerability. The article discusses the evidence by grouping studies into institutional-level financial risks, client-level social risks, and broader challenges linked to regulation, digitalization, and new models such as green and Islamic microfinance. Overall, the review finds that sustainable microfinance requires integrated risk management frameworks that jointly address financial sustainability, social protection, and long-term mission alignment.
Sovereign Bond Market Risks and Their Relation to Fiscal Fundamentals
This article examines how fiscal fundamentals shape sovereign bond market risks in recent years and how this relationship evolves under episodes of heightened uncertainty. Using a systematic literature review of peer reviewed articles published between 2019 and 2023, it synthesizes evidence on the links between public debt, deficits, fiscal space and institutional quality, on the one hand, and bond yields, spreads and sovereign credit risk, on the other. The review describes how the selected studies operationalize sovereign risk and fiscal variables, compares their empirical approaches across advanced and emerging economies, and organizes the findings into themes covering normal times, crisis and pandemic episodes, and the role of monetary policy and financial integration. The main findings show that fiscal fundamentals remain central to sovereign risk pricing, but their impact is state dependent and mediated by fiscal space, credibility and global conditions, with important implications for fiscal frameworks and financial stability.
Digital Banking Transformation and Its Implications for Risk Management
This article examines how digital banking transformation reshapes risk management in the banking sector, in a context where technology, competition and customer expectations are rapidly evolving. The study’s role is to synthesize dispersed empirical evidence by conducting a systematic literature review of peer-reviewed journal articles published between 2019 and 2023 that analyze digital banking, risk exposure and bank stability. The review shows that digitalization alters risk profiles by increasing operational and cyber vulnerabilities through higher transaction volumes and complex system architectures, while simultaneously enabling richer data, automation and real-time monitoring that can strengthen controls. The article discusses these patterns through thematic mapping of how digitalization is measured, which risk categories are affected and how governance and control frameworks respond. The main findings indicate that the impact of digital banking on overall risk is context dependent, enhancing resilience where governance and regulation are strong but potentially amplifying losses and risk-taking where digital expansion outpaces risk-management capabilities.
Determinants of Capital Structure and Their Implications for Financial Risk Exposure
This article examines how firm-level determinants of capital structure shape corporate financial risk exposure, focusing on distress, default and volatility outcomes. The study’s role is to integrate two strands of research that are often treated separate
The Evolution of Fintech-Driven Risk Management Strategies in Developing Economies
This article examines how fintech driven innovation is reshaping risk management in developing economies, where digital finance, mobile money and platform-based lending are expanding rapidly against a backdrop of constrained regulatory and supervisory capacity. The main question is how these technologies affect credit, liquidity, operational and cyber risks, and under what conditions they support or undermine financial stability. The study uses a systematic literature review of peer reviewed research to consolidate dispersed evidence on fintech, financial inclusion and risk management. The results show a dual pattern: fintech tends to broaden access and diversify income sources, yet can amplify vulnerabilities when governance, consumer protection and supervisory frameworks lag behind innovation. The article discusses these dynamics through thematic analysis of institutional, technological and regulatory dimensions. The main findings highlight that fintech driven risk management is most effective where risk-based regulation, robust internal governance and upgraded data and analytics capabilities evolve in parallel with digital financial services.
Credit Risk Assessment Models in Peer to Peer Lending Platforms
This study provides a systematic literature review of credit risk assessment models in peer to peer lending platforms. The review is motivated by growing concerns about platform failures, loan underperformance, and investor protection in markets characterised by high information asymmetry and thin borrower credit files. Using structured database searches and explicit inclusion criteria, the study synthesises evidence on statistical, machine learning, and ensemble based models that are applied to large scale lending datasets. The findings show that advanced modelling techniques consistently outperform traditional scorecards in predicting default and, when designed to target risk adjusted returns, can support more sustainable portfolio performance for investors. The review also highlights the rising importance of soft and unstructured information, including narrative loan descriptions, personality related indicators, and other non traditional signals, which enhance discrimination power when combined with numerical features. Finally, the study identifies an emerging shift toward explainable artificial intelligence and profit oriented scoring within governance frameworks that emphasise transparency, fairness, and regulatory compliance. These developments highlight the need for integrated and transparent credit frameworks.
The Effect of Financial Risk Governance on Volatility Management in Multinational Corporations
This article investigates how financial risk governance influences volatility management in multinational corporations operating under heightened macroeconomic and geopolitical uncertainty. The main question is how structures such as board risk committees and enterprise risk management frameworks affect volatility in earnings, cash flows and firm value across complex cross border operations. The study adopts a systematic literature review of peer reviewed research published between 2018 and 2022, synthesizing evidence from banking, insurance and non-financial multinational settings. The results indicate that stronger risk governance is generally associated with more disciplined risk taking, more coherent hedging and capital policies, and more stable solvency and performance indicators, although transition and disclosure effects can temporarily increase measured risk. The article discusses these patterns through thematic analysis of governance mechanisms, volatility measures and international context. The main findings highlight that integrated financial risk governance is a key channel for stabilizing financial outcomes, while empirical evidence specific to multinational groups remains limited.
Sovereign Risk and Fiscal Sustainability: A Cross Country Analysis
This study examines how sovereign risk and fiscal sustainability interact across advanced and emerging economies in an environment of high public debt and recurrent shocks. Using a systematic literature review, it synthesizes evidence on how public debt dynamics, fiscal reaction behaviour, institutional frameworks, and climate related factors are reflected in market based measures of sovereign risk such as bond yields and credit default swap spreads. The findings indicate that high and rising debt levels, weak or delayed fiscal adjustment, and fragile institutions are associated with higher sovereign borrowing costs and greater vulnerability to fiscal crises. At the same time, climate vulnerability, natural disasters, and the transition to a low carbon economy increasingly affect sovereign creditworthiness by depressing growth, eroding tax bases, and raising contingent liabilities. Overall, the review highlights that meaningful assessments of fiscal sustainability must integrate debt dynamics, fiscal policy responses, institutional credibility, and long horizon climate risks and robust well designed fiscal rules in order to identify policy configurations that support sustainable public finances and resilient market access.
Climate Related Financial Risks and Their Implications on Investment Portfolios
This study reviews how climate related financial risks shape asset pricing and portfolio management. Climate change generates physical and transition risks that affect expected cash flows, discount rates, and risk premia, making climate risk a material driver of portfolio performance and financial stability. Using a systematic literature review of peer reviewed studies, the paper synthesizes evidence on how climate risk is priced across equities, bonds, real estate, and derivatives, and how green and brown assets exhibit distinct return patterns. The findings show that climate risk is reflected in cross section returns, option implied tail risk, and time varying green brown performance differentials driven by policy, technology, and investor sentiment. Climate aware portfolio strategies such as tilting toward low emission firms, excluding high carbon sectors, and constructing climate hedge factors can reduce exposure to transition risk but may alter expected returns and diversification benefits. The review identifies a key gap in holistic multi asset frameworks and calls for integrated portfolio models that embed climate scenarios, cross asset hedging opportunities, and long horizon uncertainty. These insights provide guidance for constructing resilient, climate aware portfolios across investment horizons.
Blockchain Risk Management Practices in Financial Institutions: A Literature Review
This article examines how financial institutions manage the risks associated with blockchain adoption at a time when distributed ledger technology is moving from experimental pilots into core banking, insurance and capital markets processes. The main question is how blockchain specific operational, cyber, legal and governance risks are identified, assessed and controlled within established risk management frameworks. The study uses a systematic literature review of peer reviewed research to consolidate dispersed evidence from information systems, finance and regulation. The results show that institutions tend to rely on permissioned architectures, consortia governance and layered controls to contain security, compliance and reputational risks, while many implementations remain at pilot or limited scale. The article discusses these patterns through thematic analysis of risk categories and control mechanisms. The main findings highlight that effective blockchain risk management is central to realizing promised efficiency and transparency benefits, and that robust empirical evaluations of specific practices are still relatively scarce.
Big Data Analytics for Fraud Detection and Risk Mitigation in Financial Services
This study examines how big data analytics is transforming fraud detection and risk mitigation in financial services. The rapid expansion of digital finance has amplified cybercrime, money laundering, and complex cross channel fraud, exposing the limitations of traditional rule based and manual controls. Using a systematic literature review approach, this paper synthesizes evidence on the deployment of big data platforms, machine learning, and deep learning across banking, insurance, and capital markets. The findings show that analytics driven systems, particularly those combining supervised and unsupervised techniques, enhance the detection of anomalous behavior, capture rare and non linear fraud patterns, and support continuous, real time surveillance of transaction populations. Beyond transaction level monitoring, big data analytics is increasingly embedded in early warning systems, credit scoring, stress testing, and portfolio monitoring, thereby strengthening credit, operational, and reputational risk management. However, persistent challenges related to data quality, legacy infrastructures, model transparency, regulatory and ethical concerns, and shortages of analytics skills constrain the full realization of these benefits. Overall, the review underscores that big data analytics delivers the greatest value when integrated into institution wide risk governance frameworks that align technology, data governance, regulation, and human expertise.
Hedging Strategies for Commodity Price Risk in Volatile Global Markets
This study conducts a systematic literature review of hedging strategies for commodity price risk in increasingly volatile and integrated global markets. The evidence shows that overlapping shocks from health, geopolitical, policy, and climate factors amplify price swings in energy, metal, and agricultural commodities, making risk management a strategic necessity. Derivatives such as futures, options, and over the counter contracts remain the main tools for stabilizing cash flows and reducing earnings volatility, but their effectiveness is highly state dependent due to basis risk and changing market conditions. Dynamic, time varying hedge ratios and more sophisticated models that capture shifting correlations and volatilities are therefore needed to sustain hedge performance over time. The review also indicates that hedging is closely connected to firms’ financing, investment, and governance decisions, supporting higher capital expenditure, firm value, and lower distress risk when aligned with underlying exposures and supported by deep, transparent derivative markets and robust institutional frameworks.
Global Supply Chain Disruptions and Their Financial Risk Implications
This article examines how global supply chain disruptions translate into financial risk for firms, focusing on the period when pandemic related shocks exposed structural vulnerabilities in global production networks. The main question is how disruptions in sourcing, production and logistics are reflected in firm performance, shareholder value and market-based measures of risk. Using a systematic literature review of peer reviewed studies published between 2019 and 2022, the study integrates fragmented evidence from supply chain management, finance and international business. The results show that disruptions are rapidly transmitted through multi-tier networks, are consistently priced as adverse events by capital markets and are associated with deteriorations in profitability and revenue growth. The discussion synthesizes these patterns through thematic analysis that distinguishes operational channels, financial outcomes and moderating resilience mechanisms. The main findings highlight that supply chain resilience functions as a strategic financial asset and that significant gaps remain regarding long term and emerging market impacts.
Liquidity Risk Management in Islamic and Conventional Banking: A Comparative Study
This study examines liquidity risk management in Islamic and conventional banking using a systematic literature review. Liquidity risk is a critical driver of bank soundness, as even solvent institutions can fail when they cannot meet short term obligations at reasonable cost. Post crisis reforms, especially Basel III through the Liquidity Coverage Ratio and Net Stable Funding Ratio, have reshaped banks’ liquidity positions and funding structures, creating a trade off between short term profitability and long term resilience. The review shows that Islamic banks face additional challenges due to Sharia compliant contracts, limited secondary markets, and underdeveloped Islamic interbank and lender of last resort facilities, making liquidity risk more sensitive to capital adequacy, asset quality, and balance sheet composition than in conventional banks. The findings highlight the central role of regulatory design and governance, including Sharīah governance, in shaping liquidity strategies and risk taking behavior. Overall, the evidence indicates that Islamic banks tend to hold higher liquidity buffers and adopt more conservative postures, suggesting that “one size fits all” regulation is suboptimal and that liquidity frameworks should be tailored to the distinct contractual structures, governance mechanisms, and market access conditions of Islamic and conventional banks.
The Influence of Corporate Governance Quality on Financial Distress Prediction Models
This study examines how corporate governance quality enhances the predictive power of financial distress models beyond traditional accounting and market based indicators. While ratio based and Altman type models remain widely used and effective as early warning tools, they tend to overlook institutional and governance related drivers of distress. Using a systematic literature review, this study synthesizes evidence from research that incorporates board structure, ownership configuration, and board diversity into financial distress prediction frameworks. The review shows that stronger governance, reflected in board independence, effective monitoring committees, and well-designed ownership structures, is generally associated with lower distress likelihood and better model classification accuracy. However, the effect of ownership concentration and gender diversity on distress risk is context dependent, varying across legal, cultural, and market environments. Overall, the findings indicate that corporate governance quality is a critical non-financial input for improving financial distress prediction, but it should be treated as a multidimensional construct rather than a single “good governance” proxy. The study highlights the need for integrated models that combine financial indicators with multiple governance mechanisms and calls for future research to test interaction effects and compare traditional, augmented, and advanced modelling approaches.
Artificial Intelligence Driven Credit Scoring: Opportunities and Risk Implications for Financial Institutions
This study employs a literature review to examine how artificial intelligence and machine learning are transforming credit scoring and credit risk management in financial institutions. It synthesizes evidence on artificial intelligence model performance, the role of alternative data for “thin file” and unbanked borrowers, and implications for explainability, fairness, and risk governance. The findings show that neural networks, gradient boosting, random forests, and other techniques consistently outperform traditional logistic regression scorecards in predicting default and loss, while alternative data such as digital footprints, transactional records, and platform activity help expand access to credit and support more inclusive lending. At the same time, high-dimensional “black box” models raise concerns around model opacity, privacy, and data governance, and recent work documents “predictably unequal” outcomes across demographic groups. The review concludes that artificial intelligence-driven credit scoring generates an efficiency inclusion risk trade-off and highlights the need for explainable artificial intelligence tools, fairness-aware modelling, and robust regulatory and governance frameworks to ensure that benefits do not come at the expense of consumer protection and prudential stability.
Risk Governance and Audit Committee Effectiveness in Preventing Financial Misconduct
This study explores how risk governance structures and audit committee effectiveness work together to prevent financial misconduct. Using a systematic literature review, it synthesizes evidence on board-level risk mechanisms such as risk committees, chief risk officers, and enterprise risk management and audit committee characteristics, including independence, financial expertise, diversity, size, and meeting frequency. The review shows that sound risk governance is linked to more disciplined risk taking and stronger monitoring, while effective audit committees are associated with lower earnings management, fraudulent reporting, corruption, and aggressive tax behaviour. The strongest deterrent to misconduct emerges when broad risk governance frameworks are closely aligned with active and independent audit committees that translate risk information into rigorous oversight of financial reporting and compliance. The study concludes that these two mechanisms act as complementary lines of defence and calls for further research on their interaction across sectors and emerging risks such as cyber-fraud.
Regulatory Technology (RegTech) Adoption and Compliance Risk Reduction
This study examines how regulatory technology contributes to reducing compliance risk in financial institutions. Regulatory technology is understood as the use of advanced digital technologies, including data analytics, cloud computing, and machine learning, to improve regulatory monitoring, reporting, and control processes in an increasingly complex and data-intensive environment. Drawing on a systematic literature review, the study synthesises evidence from academic research, regulatory reports, and policy documents to identify key applications such as regulatory reporting, transaction monitoring, customer due diligence, and anti-money laundering and countering the financing of terrorism surveillance. The findings show that regulatory technology can enhance data quality, enable near real time supervision, and standardise the application of regulatory rules, thereby lowering the probability of non-compliance caused by human error, inconsistent interpretation, or delayed information. At the same time, the review highlights challenges related to integration with legacy information technology systems, model governance, vendor dependency, data protection, and fragmented regulatory approaches. Overall, the impact of regulatory technology on compliance risk is strongly shaped by regulatory frameworks, organisational capabilities, and ethical safeguards, indicating the need for further outcome-based empirical research.
Copyright (c) 2023 Financial Risk and Management: An International Journal