Can Shariah board characteristics influence risk-taking behavior of Islamic banks?
International Journal of Islamic and Middle Eastern Finance and Management
ISSN: 1753-8394
Article publication date: 24 September 2019
Issue publication date: 27 September 2019
Abstract
Purpose
The purpose of this paper is to study whether the characteristics of the Shariah Supervisory Board (SSB) can influence the risk-taking behaviors of Islamic banks.
Design/methodology/approach
The data on governance were collected from 70 Islamic banks’ annual reports across 18 countries for the period from 2000 to 2011 to investigate the relationship between SSB’s characteristics including size, busyness and foreign board and the Islamic banks’ risk activities.
Findings
The size of SSB and the proportion of busy board in SSB positively and significantly influence Islamic banks’ asset return and insolvency risks. Foreign members are more effective in monitoring banks’ Shariah compliance. Further analysis provides some evidence that most of the findings on the associations between the SSB structure and bank risk are derived from countries in the Gulf Cooperation Council where Shariah governance is ruled internally at the bank level.
Practical implications
There is a need for better Shariah board characteristics in place that complement with other governance mechanisms to well comprehend the main purpose of Islamic banks.
Originality/value
SSB board busyness and foreign characteristics appear to influence the risk-taking behaviors of Islamic banks.
Keywords
Acknowledgements
The authors are grateful for comments from participants at the Rutgers Business School Seminars, the American Accounting Association Annual Meeting Conference, 2016 and Portsmouth-Fordham Conference on Banking and Finance, UK, 2016 for their helpful comments. The paper’s findings, interpretations and conclusions are entirely those of the authors.
Citation
AlAbbad, A., Hassan, M.K. and Saba, I. (2019), "Can
Publisher
:Emerald Publishing Limited
Copyright © 2019, Emerald Publishing Limited