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Article
Publication date: 27 July 2021

Shahzad Akhtar, Haroon Hussain and Rana Yassir Hussain

This study aims to estimate the regulatory compliance impact on the risk of banks operating in Pakistan. The direct and indirect regulatory compliance of conventional…

Abstract

Purpose

This study aims to estimate the regulatory compliance impact on the risk of banks operating in Pakistan. The direct and indirect regulatory compliance of conventional banks with Islamic operations in terms of risk from 2009 to 2017 are estimated.

Design/methodology/approach

This study used a two-step system generalized method of moment (GMM) (dynamic panel) to examine the relationship between regulatory compliance, Islamic operations and the bank risk and tested the direct and indirect impacts of regulatory compliance and Islamic operations on the said risk.

Findings

Regulatory compliance has a significant and positive relation with bank risk, whereas the Islamic bank operations have a significant and negative relationship. Thus, regulatory compliance creates pressure on banks, but the Islamic operations of conventional banks reduce this pressure in direct and indirect ways.

Practical implications

Per the policy of State Bank of Pakistan (SBP), banks shall pursue Islamic operations to reduce regulatory pressure and widen their scope. The results suggest that regulatory compliance creates pressure on bank risk irrespective of the type of the bank. Thus, the SBP should seek the appropriate measure for this occurrence.

Originality/value

To the best of the authors’ knowledge, this work is the very first study that has considered the unique Islamic operations of conventional banks and estimated its impact on risk. Moreover, this work examined two types of bank risk instead of employing stability and market measure. This research is also the first to implement a two-step system GMM for the methodology.

Details

Nankai Business Review International, vol. 12 no. 4
Type: Research Article
ISSN: 2040-8749

Keywords

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Article
Publication date: 12 November 2020

Rana Yassir Hussain, Xuezhou Wen, Haroon Hussain, Muhammad Saad and Zuhaib Zafar

Corporate boards monitor managerial decisions as concluded by the monitoring hypothesis. In this scenario, the present study stresses that leverage decisions can be used…

Abstract

Purpose

Corporate boards monitor managerial decisions as concluded by the monitoring hypothesis. In this scenario, the present study stresses that leverage decisions can be used as a tool to control insolvency risk.

Design/methodology/approach

This study aims at investigating the intervention of capital structure and debt maturity on the relationship between corporate board composition and insolvency risk by employing Preacher and Hayes’s (2008) approach. The study sample comprises 284 firms from 2013 to 2017. Structural equation modeling is used to study the direct and indirect relationships among study variables.

Findings

Results show that debt maturity is a significant mediator between CEO duality and insolvency risk and between board size and insolvency risk relationships. However, the capital structure did not mediate any of the proposed links.

Research limitations/implications

This study suggests using more long-term debt to tackle insolvency risk in listed non-financial firms of Pakistan. It is also inferred that decisions regarding debt maturity are more crucial than capital structure decisions because insolvency risk is concerned.

Originality/value

This study evaluates the comparative mediating role of the debt maturity and the capital structure. Such role is uncommon in the literature addressing the relationship between governance variables and insolvency risk.

Details

South Asian Journal of Business Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2398-628X

Keywords

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