Investigating the linkage between Shariah board size, liquidity risk and bank stability through an asymmetric lens
Journal of Islamic Accounting and Business Research
ISSN: 1759-0817
Article publication date: 2 November 2022
Issue publication date: 17 April 2023
Abstract
Purpose
This paper aims to explore the asymmetric effect of liquidity risk (LR) and Shariah board size on bank financial stability for a panel of Islamic banks (IBs) based in Gulf Cooperation Council (GCC) and Southeast Asian countries over the 2006–2019 period.
Design/methodology/approach
This paper uses the asymmetric nonlinear autoregressive distributed lag (NARDL) error correction model insofar as it allows assessing not only whether IBs with large boards outperform their peers with reduced boardrooms but also unveiling the potential asymmetries between LR and stability.
Findings
The findings show that while increasing the number of the Shariah board members does not impact the financial stability of IBs in both the short and long runs its decrease appears to enhance their stability in the long run. The findings also show that a hike, as well as a fall in LR, significantly influences the stability in the long run, which underlines the role that LR plays in bank financial stability.
Research limitations/implications
A prominent line of future research may consist in extending the country sample to cover more representative full-fledged IBs based on different regions, which allows the breakdown of the sample into GCC-based and non-GCC-based IBs. Doing so is interesting in terms of governance implications. Another extension would consist in considering additional sources of risk to stability.
Practical implications
IBs should enhance their expertise, which helps them diversify their funding strategy and cater for liquidity solutions. They also must establish a better Shariah governance framework to contain their risk-taking behavior that ultimately contributes to achieving financial stability.
Originality/value
This paper contributes to the empirical literature in Islamic banking by performing a model that simultaneously accounts for both short- and long-run asymmetries in the relationship between the financial stability of full-fledged IBs, the LR and the size of the Shariah supervisory board.
Keywords
Acknowledgements
The authors are extremely grateful to the editor and the two anonymous reviewers for their valuable comments and suggestions, which have helped improve the quality of our manuscript substantially. Any mistakes that remain are, of course, the sole responsibility of the authors.
Funding: The authors have received no financial support for the research, authorship and/or publication of this article.
Declaration of Conflicting Interests: The authors declare no potential conflicts of interest with respect to the research, authorship and/or publication of this article.
Citation
Haddou, S. and Mkhinini, S. (2023), "Investigating the linkage between Shariah board size, liquidity risk and bank stability through an asymmetric lens", Journal of Islamic Accounting and Business Research, Vol. 14 No. 4, pp. 652-674. https://doi.org/10.1108/JIABR-03-2022-0074
Publisher
:Emerald Publishing Limited
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