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A canary in a Coalmine! religious agency and its impact on the performance of Islamic banks

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  • Shahzad Virk, Nader
  • Nawaz, Tasawar
  • Molyneux, Philip

Abstract

We examine the impact of religious agency on the performance of GCC Islamic banks. Our results show that a high proportion of prominent religious scholars on Shariah supervisory boards (SSB) improves financial performance. However, when a prominent Shariah scholar chairs the SSB there are negative performance effects. With the high concentration of a few Shariah scholars, our findings have twofold implications: first, future research should develop approaches to test Shariah governance effectiveness in relation to the assigned mandate of SSBs; second, there is a need for revisiting Shariah compliance mechanisms to mitigate the embeddedness of Shariah scholars and their influence on Islamic bank performance.

Suggested Citation

  • Shahzad Virk, Nader & Nawaz, Tasawar & Molyneux, Philip, 2022. "A canary in a Coalmine! religious agency and its impact on the performance of Islamic banks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:intfin:v:78:y:2022:i:c:s1042443122000476
    DOI: 10.1016/j.intfin.2022.101559
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    More about this item

    Keywords

    Islamic banking; Shariah governance; Entrenchment; Conflict of interest;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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