IDEAS home Printed from https://ideas.repec.org/a/eee/intfin/v78y2022ics1042443122000476.html
   My bibliography  Save this article

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1042443122000476
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.intfin.2022.101559?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Nawaz, Tasawar & Virk, Nader Shahzad, 2019. "Religious entrenchment and agency costs," Economics Letters, Elsevier, vol. 179(C), pages 83-86.
    2. Shleifer, Andrei & Vishny, Robert W., 1989. "Management entrenchment : The case of manager-specific investments," Journal of Financial Economics, Elsevier, vol. 25(1), pages 123-139, November.
    3. Clark Williams, Cynthia & Verstegen Ryan, Lori, 2007. "Courting Shareholders: The Ethical Implications of Altering Corporate Ownership Structures," Business Ethics Quarterly, Cambridge University Press, vol. 17(4), pages 669-688, October.
    4. Safiullah, Md & Shamsuddin, Abul, 2018. "Risk in Islamic banking and corporate governance," Pacific-Basin Finance Journal, Elsevier, vol. 47(C), pages 129-149.
    5. repec:bla:jfinan:v:59:y:2004:i:2:p:537-600 is not listed on IDEAS
    6. Sidani, Yusuf M. & Thornberry, Jon, 2013. "Nepotism in the Arab World: An Institutional Theory Perspective," Business Ethics Quarterly, Cambridge University Press, vol. 23(1), pages 69-96, January.
    7. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, April.
    8. Sok-Hyon Kang & Praveen Kumar & Hyunkoo Lee, 2006. "Agency and Corporate Investment: The Role of Executive Compensation and Corporate Governance," The Journal of Business, University of Chicago Press, vol. 79(3), pages 1127-1148, May.
    9. Tasawar Nawaz, 2019. "Exploring the Nexus Between Human Capital, Corporate Governance and Performance: Evidence from Islamic Banks," Journal of Business Ethics, Springer, vol. 157(2), pages 567-587, June.
    10. Jensen, Michael C. & Ruback, Richard S., 1983. "The market for corporate control : The scientific evidence," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 5-50, April.
    11. Stijn Claessens & Simeon Djankov & Joseph P. H. Fan & Larry H. P. Lang, 2002. "Disentangling the Incentive and Entrenchment Effects of Large Shareholdings," Journal of Finance, American Finance Association, vol. 57(6), pages 2741-2771, December.
    12. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    13. Remzi Gözübüyük & Carl Joachim Kock & Murat Ünal, 2020. "Who appropriates centrality rents? The role of institutions in regulating social networks in the global Islamic finance industry," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 51(5), pages 764-787, July.
    14. Mohammad Hudaib & Roszaini Haniffa, 2009. "Exploring auditor independence: an interpretive approach," Accounting, Auditing & Accountability Journal, Emerald Group Publishing Limited, vol. 22(2), pages 221-246, January.
    15. Sabur Mollah & M. Kabir Hassan & Omar Farooque & Asma Mobarek, 2017. "The governance, risk-taking, and performance of Islamic banks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 51(2), pages 195-219, April.
    16. Mollah, Sabur & Zaman, Mahbub, 2015. "Shari’ah supervision, corporate governance and performance: Conventional vs. Islamic banks," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 418-435.
    17. Tasawar Nawaz & Roszaini Haniffa & Mohammad Hudaib, 2021. "On intellectual capital efficiency and shariah governance in Islamic banking business model," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 3770-3787, July.
    18. Safiullah, Md & Shamsuddin, Abul, 2019. "Risk-adjusted efficiency and corporate governance: Evidence from Islamic and conventional banks," Journal of Corporate Finance, Elsevier, vol. 55(C), pages 105-140.
    19. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
    20. Ashraf, Dawood & Felixson, Karl & Khawaja, Mohsin & Hussain, Syed Mujahid, 2017. "Do constraints on financial and operating leverage affect the performance of Islamic equity portfolios?," Pacific-Basin Finance Journal, Elsevier, vol. 42(C), pages 171-182.
    21. Hu, Aidong & Kumar, Praveen, 2004. "Managerial Entrenchment and Payout Policy," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(4), pages 759-790, December.
    22. Coles, Jeffrey L. & Daniel, Naveen D. & Naveen, Lalitha, 2008. "Boards: Does one size fit all," Journal of Financial Economics, Elsevier, vol. 87(2), pages 329-356, February.
    23. Bitar, Mohammad & Hassan, M. Kabir & Walker, Thomas, 2017. "Political systems and the financial soundness of Islamic banks," Journal of Financial Stability, Elsevier, vol. 31(C), pages 18-44.
    24. Alqahtani, Faisal & Mayes, David G. & Brown, Kym, 2017. "Islamic bank efficiency compared to conventional banks during the global crisis in the GCC region," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 51(C), pages 58-74.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kok, Seng Kiong & Giorgioni, Gianluigi & Farquhar, Stuart, 2022. "The trade-off between knowledge accumulation and independence: The case of the Shariah supervisory board within the Shariah governance and firm performance nexus," Research in International Business and Finance, Elsevier, vol. 59(C).
    2. Safiullah, Md & Hassan, M. Kabir & Kabir, Md Nurul, 2022. "Corporate governance and liquidity creation nexus in Islamic banks—Is managerial ability a channel?," Global Finance Journal, Elsevier, vol. 51(C).
    3. Kok, Seng Kiong & Filomeni, Stefano, 2021. "The holding behavior of Shariah financial assets within the global Islamic financial sector: A macroeconomic and firm-based model," Global Finance Journal, Elsevier, vol. 50(C).
    4. Kok, Seng Kiong & Shahgholian, Azar, 2023. "The impact of proximity within elite corporate networks on the Shariah governance-firm performance nexus: Evidence from the global Shariah elite," Emerging Markets Review, Elsevier, vol. 54(C).
    5. Ferrell, Allen & Liang, Hao & Renneboog, Luc, 2016. "Socially responsible firms," Journal of Financial Economics, Elsevier, vol. 122(3), pages 585-606.
    6. Henrique Castro Martins & Cristiano Machado Costa, 2020. "Does control concentration affect board busyness? International evidence," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 24(3), pages 821-850, September.
    7. Chou, Hsin-I & Hamill, Philip A. & Yeh, Yin-Hua, 2018. "Are all regulatory compliant independent director appointments the same? An analysis of Taiwanese board appointments," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 371-387.
    8. Vu Quang Trinh & Marwa Elnahass & Aly Salama, 2021. "Board busyness and new insights into alternative bank dividends models," Review of Quantitative Finance and Accounting, Springer, vol. 56(4), pages 1289-1328, May.
    9. Eugene Kang & Mark Kroll, 2014. "Deciding Who Will Rule: Examining the Influence of Outside Noncore Directors on Executive Entrenchment," Organization Science, INFORMS, vol. 25(6), pages 1662-1683, December.
    10. Safiullah, Md & Shamsuddin, Abul, 2019. "Risk-adjusted efficiency and corporate governance: Evidence from Islamic and conventional banks," Journal of Corporate Finance, Elsevier, vol. 55(C), pages 105-140.
    11. Mushtaq Hussain Khan & Mohammad Bitar & Amine Tarazi & Arshad Hassan & Ahmad Fraz, 2021. "Corruption and bank risk-taking: The deterring role of Shari'ah supervision," Working Papers hal-03366460, HAL.
    12. Ryu, Keunkwan & Yoo, Jihye, 2011. "Relationship between management ownership and firm value among the business group affiliated firms in Korea," Journal of Comparative Economics, Elsevier, vol. 39(4), pages 557-576.
    13. Abid, Ammar & Gull, Ammar Ali & Hussain, Nazim & Nguyen, Duc Khuong, 2021. "Risk governance and bank risk-taking behavior: Evidence from Asian banks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    14. Trinh, Vu Quang & Aljughaiman, Abdullah A. & Cao, Ngan Duong, 2020. "Fetching better deals from creditors: Board busyness, agency relationships and the bank cost of debt," International Review of Financial Analysis, Elsevier, vol. 69(C).
    15. Manhwa Wu & Paoyu Huang & Yensen Ni, 2020. "The Impact of Institutional Shareholdings on Price Limits," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 27(3), pages 343-361, September.
    16. Premepeh, kwadwo Boateng & Odartei-Mills, Eugene, 2015. "Corporate governance structure and shareholder wealth maximisation," MPRA Paper 68087, University Library of Munich, Germany.
    17. Elnahass, Marwa & Trinh, Vu Quang & Li, Teng, 2021. "Global banking stability in the shadow of Covid-19 outbreak," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 72(C).
    18. Naeem Tabassum & Satwinder Singh, 2020. "Corporate Governance and Organisational Performance," Springer Books, Springer, number 978-3-030-48527-6, December.
    19. Isabel Gutierrez & Jordi Surroca, 2014. "Revisiting corporate governance through the lens of the Spanish evidence," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(4), pages 989-1017, November.
    20. Shan, Yuan George & Troshani, Indrit & Tarca, Ann, 2019. "Managerial ownership, audit firm size, and audit fees: Australian evidence," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 35(C), pages 18-36.

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:intfin:v:78:y:2022:i:c:s1042443122000476. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/intfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.