English (United Kingdom)

https://curated-unify.zendy.io/wp-json/zendy-region/v1/featured_content/oa?rat=en

https://curated-unify.zendy.io/wp-json/zendy-region/v1/highlighted_journal/

Global: Zendy Tools annual

Presents the keyphrase highlighting as premium feature

Keyphrase Highlighting

Presents the summarisation as premium feature

Summarisation

Insights

Presents the pdf analysis as premium feature

PDF Analysis

Presents the zaia usage as premium feature

ZAIA

Global: Zendy Tools monthly

Global: Zendy Plus monthly

Presents the access of premium content as premium feature

Premium Content

Global: Zendy Plus annual

Global: Zendy Free Plan

Purpose: The paper examines the effectiveness of internal control systems, exploresthe exposure of Spanish banks to the dangers of default as a result of internal controlsystems and establishes a relationship between internal controls and credit risk.Design/methodology/approach: Quantitative research approach is used to testhypotheses on the relationship between internal controls and credit risk among listedbanks in Spain. Data from Bankscope and company websites from 2004-2013 wereused. Generalized Least Squares (random effect) econometric estimation technique wasused for the model.Findings: We find that internal control systems are in place but their effectivenesscannot be guaranteed. This exposes Spanish listed banks to serious default situations.There is significant effect of internal controls on credit risk especially the controlenvironment, risk management, control activities and monitoring. The non-disclosure ofmaterial internal control weakness is a contributory factor to the ineffective internalcontrol systems. There is however a perceived board ineffectiveness which does notaugur well for effective internal control systems. Board characteristics for Spanishbanks confirm the agency theory.Research limitations/implications: Data unavailability for certain years, variablesand many inactive banks did not permit a larger sample size than expected. The use ofquantitative variables lacks flexibility. Practical implications: Bank management will find the work useful to ensure strictenforcement of internal control mechanisms and see it as both credit risk andoperational risk issues. Central bank should hurry to compel banks to disclose materialinternal control weakness as provided in the reviewed COSO framework.Social implications: Ineffective internal controls lead to credit risks, bank closure andloss of investments. Society suffers a lot from such losses and contagion. Disclosure ofmaterial internal control weakness is a social responsibility of banks.Originality/value: The authors are yet to come across the use of purely quantitativevariables to model the effect of elements of internal controls on credit risk. This studyopens and adds a new dimension of internal controls not only to be seen as operationalrisk issue but also credit risk

Effect of internal controls on credit risk among listed Spanish banks