Financial soundness of Islamic banks: does the structure of the board of directors matter? - Université de Bourgogne
Article Dans Une Revue Corporate Governance: The international journal of business in society Année : 2021

Financial soundness of Islamic banks: does the structure of the board of directors matter?

Résumé

Purpose The purpose of this paper is to examine the Board of Directors’ characteristics and their impact on the financial soundness of Islamic banks. Design/methodology/approach Regression analysis is applied to test the impact of the Board of Directors’ characteristics on the financial soundness of Islamic banks, using a panel data set of 67 Islamic banks covering 20 countries from 2005 to 2018. The Z-score indicator is used to evaluate the Islamic banks’ soundness. To check the robustness of the results, this paper uses other dependent variables ( CAMEL ) than the Z-score. Findings The main results show that the presence of an independent non-executive director negatively impacts the financial soundness of Islamic banks, while the chief executive officer duality practice has a positive effect on it. Other characteristics of the Board of Directors do not significantly impact the financial soundness of Islamic banks (foreign director, institutional director, chairman with a Shari’ah degree, interlocked chairman and the Board of Directors’ size). Practical implications This study aims to fill the gaps in the literature that discuss the Board of Directors’ role in corporate governance and its impact on the financial soundness of Islamic banks. In other words, it shows the role played by the Board of Directors and improves the knowledge of the corporate governance-financial soundness relationship. Plus, managers, investors and regulators may gain evocative insights, particularly those looking to improve their Islamic banks’ soundness by restructuring their boards’ composition. Originality/value This study sheds new light on the literature on Islamic banking by clarifying the relationship between the Board of Directors and the financial soundness of Islamic banks. Contrary to previous research, this paper uses an additional hypothesis stating that a chairman with a Shari’ah degree (Fiqh Muamalt) has a positive impact on the financial soundness of Islamic banks.
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Dates et versions

hal-03451470 , version 1 (26-11-2021)

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Citer

Afef Khalil, Imen Ben Slimene. Financial soundness of Islamic banks: does the structure of the board of directors matter?. Corporate Governance: The international journal of business in society, 2021, 21 (7), pp.1393-1415. ⟨10.1108/CG-06-2020-0237⟩. ⟨hal-03451470⟩
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