Corporate governance mechanism and the risk exposure of Islamic mutual funds: evidence from Islamic countries

Purpose - This study aims to analyze the impact of corporate governance characteristics on the risk exposure of Islamic mutual funds prevailing in different Islamic countries (Pakistan and Malaysia). Design/methodology/approach - This study used dynamic panel regression model for analysis and estimated the results using system generalized method of moment technique. A sample of 185 Islamic funds is used in the current research, which is selected using judgmental sampling. The data span of this study consists nine years from 2009 to 2017. Findings - The results showed that the corporate governance characteristics such as board independence, directors and institutional ownership and overall governance quality are helpful in reducing the total and downside risk exposure of Islamic mutual funds. The findings also suggest that board size and Chief Extractive officer duality play no role in mitigating the risk of Islamic funds prevailing in both countries. Practical implications - This study has implication for industry practitioners and fund managers. This study showed that the corporate governance characteristics are helpful in reducing the risk exposure of Islamic mutual funds. Therefore, this study provides input to the investment firms to improve the quality of corporate governance for lowering the risk exposure of mutual funds. Originality value - To the best of the authors’ knowledge, this study is the first attempt to analyze the impact of corporate governance characteristics on the risk exposure of Islamic mutual funds and hence provides significant contribution in the literature of mutual funds.