Strong Board and Risk-Taking in Islamic Banks
32 Pages Posted: 29 Jan 2017 Last revised: 3 Oct 2017
Date Written: September 28, 2017
This paper examines whether variations in strong boards explain the differences between risk-taking in Islamic and conventional banks. From an analysis of a pooled sample of Islamic and conventional banks, we find that strong boards in general serve their shareholders through engaging in higher risk-taking activities across both types of banks. In Islamic banks, however, a strong board is found to mitigate risk-taking when integrated with a Shari’ah supervisory board (SSB) as religiosity restrains risk-taking. We recommend that Islamic bank regulators improve the SSB’s monitoring abilities, and thus facilitate its interaction with the board of directors.
Keywords: Strong Board, SSB, Religiosity, Risk-Taking, Islamic Banks, Conventional Banks
JEL Classification: G01, G21, G34
Suggested Citation: Suggested Citation