Effectiveness of the Internal Control on Banking Risk Management of Commercial Banks in Libya

This study has the main aim of exploring the influence of internal control and its factors on risk management in commercial banks in Libya. The theoretical framework of this research includes five independent variables; control environment, risk assessment, control activities, information and communication; that have impacts on both internal control as a mediator and risk management as the highest outcome variable. This study is following the scientific approach; therefore, a quantitative approach and a deductive approach are applied. The population size of this study is 580 manager and departmental head of the Libyan commercial banks and the sample size of this particular study is estimated as 230 managers and department heads. The questionnaire is built based on different sources from previous studies and the translation to Arabic is done by professional translators by using translation back process. The actual dataset that used for analysis has 242 cases. The prediction constructs can explain more 60.3%of the risk management (RM) variance and the prediction constructs can explain more 35.5% of the effectiveness of internal control (EIC) variance. The study has sixteen hypotheses; which include ten direct effect hypotheses to assess the relationship from the five proposed antecedents to the effectiveness of internal control and to risk management, one relationship between both outcome variables, and five hypotheses associated with the mediating effect of internal control. Four hypotheses are rejected, which are all the assumptions related to the control environment variable.