An Empirical Study on Corporate Governance and Islamic Bank Performance: A Case Study of Bangladesh

• Published in: International journal of finance & banking studies 2016-07, Vol.5 (4), p.1-9
• Main Authors: Ahmed, Sarwar Uddin, Ullah, Wali, Ahmed, Samiul Parvez, Rahman, Ashikur
• Format: Article
• Language: English
• Subjects: Banking industry; Banks; Corporate governance; Ethics; Islamic financing; Studies
• ISSN: 2147-4486; 2147-4486
• DOI: 10.20525/ijfbs.v5i4.478

Corporate governance refers to the relationship present between the corporation and the stakeholders that determines and controls the strategic direction and performance of the corporation. Good corporate governance should provide adequate incentives for the board and management to pursue objectives that are in the interests of the company and shareholders, thereby encouraging firms to use resources more efficiently. However, the definition of accountability differs between conventional and Islamic Banks. Islam was made accountable not only to stakeholders, but also to Allah, the ultimate owner and authority. These powerful moral ethics help in promoting fair, just and honest business dealing. The aim of this study is to examine the relationship between corporate governance structures and the resultant financial performance of listed Islamic banks of Dhaka Stock Exchange (DSE) in Bangladesh. The panel time series data were collected for the time period of 6 years (2009-2014) from all the listed Islamic banks to run an Ordinary Least Squared (OLS) regression model to examine whether the existing corporate governance mechanisms as well as several other internal and external indicators are significant in influencing the financial performance. Preliminary findings suggest corporate governance mechanisms in Islamic banks are not quite as strong as they should be, hinting at possible market and management inefficiencies.