Impact of corporate governance mechanisms on financial performance, risk-taking and basel compliance of Islamic banks

Abstract

The purpose of this study is to examine the effects of ownership concentration, board characteristics and Sharia governance financial performance, risk-taking behaviour and Basel compliance of Islamic banks. Our sample is based on 60 Islamic banks form the GCC and non-GCC countries covering a period of five years (2014-2018). We use descriptive statistics (e.g., mean and standard deviation), univariate (e.g., correlations and t-tests), multivariate (OLS regressions) techniques to analyse governance and financial data. We find that board size has a statistically negative association with profitability and valuation, and a positive association with risk-taking, asset quality and capital adequacy. In addition, board independence is found to be positively associated with valuation, asset quality and capital adequacy, and negatively associated with risk-taking behaviour. Among Sharia governance characteristics, Sharia board size shows a positive association and Sharia board expertise shows a negative association with risk-taking behaviour. Moreover, Sharia board interlocking shows positive relationship with profitability, valuation and risk-taking. Finally, we find ownership concentration to be positively associated to valuation and risk-taking behaviour of IBs.

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ORCID for Faizul Haque: orcid.org/0000-0003-1556-3466

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