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The governance, risk-taking, and performance of Islamic banks

Sabur Mollah, M. Kabir Hassan, Omar Al Farooque, Asma Mobarek

Journal of Financial Services Research, Volume: 51, Issue: 2, Pages: 195 - 219

Swansea University Author: Sabur Mollah

Abstract

We examine whether the difference in governance structures influences the risk taking and performance of Islamic banks compared to conventional banks. Using a sample of 52 Islamic banks and 104 conventional banks in 14 countries for the period from 2005 to 2013, we conclude that the governance struc...

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Published in: Journal of Financial Services Research
ISSN: 0920-8550 1573-0735
Published: 2016
Online Access: Check full text

URI: https://cronfa.swan.ac.uk/Record/cronfa38261
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Abstract: We examine whether the difference in governance structures influences the risk taking and performance of Islamic banks compared to conventional banks. Using a sample of 52 Islamic banks and 104 conventional banks in 14 countries for the period from 2005 to 2013, we conclude that the governance structure in Islamic banks plays a crucial role in risk taking as well as financial performance that is distinct from conventional banks. Particularly, we show that the governance structure in Islamic banks allows them to take higher risks and achieve better performance because of product complexities and transaction mechanisms. However, Islamic banks maintain a higher capitalization compared to conventional banks. These results support the research on Islamic investment and risk taking. Our results add a new dimension to the governance research that could be a valuable source of knowledge for policy makers and regulators in the financial services sector.
Keywords: Corporate governance • Risk-taking • Firm performance • Islamic banks
College: Faculty of Humanities and Social Sciences
Issue: 2
Start Page: 195
End Page: 219