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

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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Bibliographic Details
Published in:Journal of financial services research 2017-04, Vol.51 (2), p.195-219
Main Authors: Mollah, Sabur, Hassan, M. Kabir, Al Farooque, Omar, Mobarek, Asma
Format: Article
Language:English
Subjects:
Banking industry
Banks
Boards of directors
Business Administration
Business models
Corporate governance
Economics and Finance
Finance
Financial performance
Financial Services
Firm performance
företagsekonomi
International finance
Islamic banks
Islamic financing
Islamic law
Macroeconomics/Monetary Economics//Financial Economics
Muslims
Population
Risk management
Risk-taking
Studies
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Summary: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.
ISSN:0920-8550
1573-0735
1573-0735
DOI:10.1007/s10693-016-0245-2