Strong Board and Risk-Taking in Islamic Banks

32 Pages Posted: 29 Jan 2017 Last revised: 3 Oct 2017

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

Michael T. Skully

Monash University - Department of Banking and Finance; Financial Research Network (FIRN)

Eva Liljeblom

Swedish School of Economics and Business Administration

Date Written: September 28, 2017

Abstract

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

Mollah, Sabur and Skully, Michael T. and Liljeblom, Eva, Strong Board and Risk-Taking in Islamic Banks (September 28, 2017). Available at SSRN: https://ssrn.com/abstract=2905179 or http://dx.doi.org/10.2139/ssrn.2905179

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

Michael T. Skully

Monash University - Department of Banking and Finance ( email )

900 Dandenong Road
Caulfield East, Victoria 3145
Australia
+61 3 9903 2407 (Phone)
+61 3 9903 1443 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Eva Liljeblom

Swedish School of Economics and Business Administration ( email )

P.O. Box 479
FI-00101 Helsinki, 00101
Finland
+358-9-431 33 291 (Phone)
+358-9-431 33 393 (Fax)

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