The determinants of the effectiveness of corporate governance at Islamic banks Online publication date: Sun, 10-Sep-2017
by Majdi Anwar Quttainah; John Cocco; Awad Al-Zufairi
International Journal of Business Governance and Ethics (IJBGE), Vol. 12, No. 2, 2017
Abstract: This paper investigates the impact of institutional corporate governance on the financial performance of Islamic banks, with a specific focus on their religious supervisory boards. The findings of this study indicate that Islamic banks with religious supervisory boards embedded into their governance structures outperform Islamic banks without such integrated boards, as measured by return on assets (ROA), return on equity (ROE), and asset growth (AG). Our findings also indicate several characteristics of religious supervisory boards, including size, influence the financial performance of Islamic banks with such boards. Moreover, religious supervisory boards provide tighter monitoring and control, as well as more advising and counselling, compared with Islamic banks without dedicated religious supervisory boards. Overall, our study provides strong evidence that religious supervisory boards benefit Islamic bank shareholders by complementing corporate boards and thus mitigating agency problems and agency costs.
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