The Governance, Risk-Taking, and Performance of Islamic Banks

29 Pages Posted: 17 Mar 2016

See all articles by Sabur Mollah

Sabur Mollah

Sheffield University Management School, University of Sheffield; Swansea Management School, Swansea University; Hull University Business School; Hull University Business School

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

Omar Al Farooque

University of New England (Australia)

Mobarek Asma

Stockholm Business School

Date Written: March 15, 2016

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

JEL Classification: G34, Y90, G01

Suggested Citation

Mollah, Sabur and Hassan, M. Kabir and Farooque, Omar Al and Asma, Mobarek, The Governance, Risk-Taking, and Performance of Islamic Banks (March 15, 2016). Journal of Financial Services Research, 2016. Available at SSRN: https://ssrn.com/abstract=2747786

Sabur Mollah (Contact Author)

Sheffield University Management School, University of Sheffield ( email )

Conduit Road
Sheffield, Sheffield S10 1FL
United Kingdom

Swansea Management School, Swansea University ( email )

Singleton Park
Swansea, Wales SA2 8PP
United Kingdom

Hull University Business School ( email )

Cottingham Road
Hull, Great Britain HU6 7RX
United Kingdom

Hull University Business School ( email )

Cottingham Road
Hull, Hull HU6 7RX
United Kingdom

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

Omar Al Farooque

University of New England (Australia) ( email )

Armidale
Armidale, New South Wales 2351
Australia

Mobarek Asma

Stockholm Business School ( email )

Roslagsvägen 1010
Stockholm, SE-106 91
Sweden

Register to save articles to
your library

Register

Paper statistics

Downloads
190
Abstract Views
657
rank
157,232
PlumX Metrics