IDEAS home Printed from https://ideas.repec.org/a/idn/journl/v24y2021i2dp221-236.html
   My bibliography  Save this article

Does Corporate Governance Matter For Asset Quality Of Islamic Banks?

Author

Listed:
  • Ejaz Aslam

    (Minhaj University Lahore)

  • Aziz Ur-Rehman

    (IIUM Institute of Islamic Banking and Finance)

  • Anam Iqbal

    (IIUM Institute of Islamic Banking and Finance)

Abstract

This study investigates the impact of corporate governance on asset quality of Islamic banks by employing data on 129 Islamic banks from 29 countries spanning the period from 2008 to 2017. The study shows that asset quality of Islamic banks is positively and significantly sensitive to an increase in board independence, Shariah board, and audit committee effectiveness. The study finds that female participation in management as CEOs seems to detract from good performance and that more board meetings can be harnessed to improve banks’ asset quality. These empirical findings have practical policy implications regarding asset quality management and board construction within the Islamic banking sector.

Suggested Citation

  • Ejaz Aslam & Aziz Ur-Rehman & Anam Iqbal, 2021. "Does Corporate Governance Matter For Asset Quality Of Islamic Banks?," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 24(2), pages 221-236, June.
    • Handle: RePEc:idn:journl:v:24:y:2021:i:2d:p:221-236
    DOI: https://doi.org/10.21098/bemp.v24i2.1344
    as

    Download full text from publisher

    File URL: https://bulletin.bmeb-bi.org/cgi/viewcontent.cgi?article=1019&context=bmeb
    Download Restriction: no
    File URL: https://libkey.io/https://doi.org/10.21098/bemp.v24i2.1344?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
    ---><---

    References listed on IDEAS

    as
    1. Farag, Hisham & Mallin, Chris & Ow-Yong, Kean, 2018. "Corporate governance in Islamic banks: New insights for dual board structure and agency relationships," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 54(C), pages 59-77.
    2. repec:eme:mfppss:mf-05-2017-0200 is not listed on IDEAS
    3. Muhammad Mahmood Shah Khan & Farrukh Ijaz & Ejaz Aslam, 2014. "Determinants of Profitability of Islamic Banking Industry: An Evidence from Pakistan," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 6(2), pages 27-46, October.
    4. Ali R. Almutairi & Majdi Anwar Quttainah, 2017. "Corporate governance: evidence from Islamic banks," Social Responsibility Journal, Emerald Group Publishing Limited, vol. 13(3), pages 601-624, August.
    5. Naif AlSagr & Samir Belkhaoui & Abdullah Aldosari, 2018. "The Effect of Corporate Governance Mechanisms on Bank Performance Evidence from Saudi Banking Sector," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 8(8), pages 1111-1125.
    6. Juhro, Solikin M. & Narayan, Paresh Kumar & Iyke, Bernard Njindan & Trisnanto, Budi, 2020. "Is there a role for Islamic finance and R&D in endogenous growth models in the case of Indonesia?," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    7. Wang, Wei-Kang & Lu, Wen-Min & Lin, Yi-Ling, 2012. "Does corporate governance play an important role in BHC performance? Evidence from the U.S," Economic Modelling, Elsevier, vol. 29(3), pages 751-760.
    8. Naif AlSagr & Samir Belkhaoui & Abdullah Aldosari, 2018. "The Effect of Corporate Governance Mechanisms on Bank Performance Evidence from Saudi Banking Sector," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 8(8), pages 1111-1125, August.
    9. Abdelaziz Chazi & Ashraf Khallaf & Zaher Zantout, 2018. "Corporate Governance And Bank Performance: Islamic Versus Non-Islamic Banks In GCC Countries," Journal of Developing Areas, Tennessee State University, College of Business, vol. 52(2), pages 109-126, April-Jun.
    10. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
    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. Oumniya Amrani & Amal Najab, 2022. "The Impact of Multi-Layer Corporate Governance on Banks’ Performance under the GFC and the COVID-19: A Cross-Country Panel Analysis Approach," JRFM, MDPI, vol. 16(1), pages 1-25, December.
    2. Naif Alsagr & Stefan F. Van Hemmen Almazor, 2020. "Oil Rent, Geopolitical Risk and Banking Sector Performance," International Journal of Energy Economics and Policy, Econjournals, vol. 10(5), pages 305-314.
    3. Dong, Yizhe & Girardone, Claudia & Kuo, Jing-Ming, 2017. "Governance, efficiency and risk taking in Chinese banking," The British Accounting Review, Elsevier, vol. 49(2), pages 211-229.
    4. Rita Wijayanti & Doddy Setiawan, 2022. "Social Reporting by Islamic Banks: The Role of Sharia Supervisory Board and the Effect on Firm Performance," Sustainability, MDPI, vol. 14(17), pages 1-25, September.
    5. Osei, Francis, 2022. "The effect of corporate governance elements on employee performance: evident form ghanaian banking industry," Technium Business and Management, Technium Science, vol. 2(3), pages 6-22.
    6. Yaseen Al-Janadi, 2021. "Ownership Structure and Firm Performance in the Middle East: A Meta-Analysis," JRFM, MDPI, vol. 14(12), pages 1-23, December.
    7. 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).
    8. George Owusu-Antwi & Rachna Banerjee & Patrick Ofei, 2018. "Ownership Structure and Bank Performance: Empirical Evidence from the UAE," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 8(12), pages 1422-1438, December.
    9. Youngho Kang & Byung-Yeon Kim, 2018. "Immigration and economic growth: do origin and destination matter?," Applied Economics, Taylor & Francis Journals, vol. 50(46), pages 4968-4984, October.
    10. Thorsten Lehnert, 2019. "Asset pricing implications of good governance," PLOS ONE, Public Library of Science, vol. 14(4), pages 1-14, April.
    11. Arturas Juodis, 2013. "Cointegration Testing in Panel VAR Models Under Partial Identification and Spatial Dependence," UvA-Econometrics Working Papers 13-08, Universiteit van Amsterdam, Dept. of Econometrics.
    12. Vieira, Flávio & MacDonald, Ronald & Damasceno, Aderbal, 2012. "The role of institutions in cross-section income and panel data growth models: A deeper investigation on the weakness and proliferation of instruments," Journal of Comparative Economics, Elsevier, vol. 40(1), pages 127-140.
    13. Nam, Changwoo, 2016. "Impact of Corporate Tax Cuts on Corporate Investment," KDI Policy Forum 264, Korea Development Institute (KDI).
    14. Manthos D. Delis & Sotirios Kokas & Steven Ongena, 2016. "Foreign Ownership and Market Power in Banking: Evidence from a World Sample," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(2-3), pages 449-483, March.
    15. Alessandra Canepa & Fawaz Khaled, 2018. "Housing, Housing Finance and Credit Risk," IJFS, MDPI, vol. 6(2), pages 1-23, May.
    16. Massimo Colombo & Annalisa Croce & Samuele Murtinu, 2014. "Ownership structure, horizontal agency costs and the performance of high-tech entrepreneurial firms," Small Business Economics, Springer, vol. 42(2), pages 265-282, February.
    17. Heng, Dyna, 2011. "Capital flows and real exchange rate: does financial development matter?," MPRA Paper 48553, University Library of Munich, Germany, revised May 2012.
    18. Samuel Fosu, 2013. "Banking Competition in Africa: Sub-regional Comparative Studies," Discussion Papers in Economics 13/12, Division of Economics, School of Business, University of Leicester, revised Jun 2013.
    19. Da Teng & Douglas B. Fuller & Chengchun Li, 2018. "Institutional change and corporate governance diversity in China’s SOEs," Asia Pacific Business Review, Taylor & Francis Journals, vol. 24(3), pages 273-293, May.
    20. Baharumshah, Ahmad Zubaidi & Slesman, Ly & Wohar, Mark E., 2016. "Inflation, inflation uncertainty, and economic growth in emerging and developing countries: Panel data evidence," Economic Systems, Elsevier, vol. 40(4), pages 638-657.

    More about this item

    Keywords

    Corporate governance; 2SYS-GMM; Loan to assets; Loan to deposit; Non-performing loans; OIC countries;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

    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:idn:journl:v:24:y:2021:i:2d:p:221-236. 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: Lutzardo Tobing or Jimmy Kathon (email available below). General contact details of provider: https://edirc.repec.org/data/bigovid.html .

    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.