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The governance, risk-taking, and performance of Islamic banks

Author

Listed:
  • Sabur Mollah

    (Stockholm University)

  • M. Kabir Hassan

    (New Orleans University)

  • Omar Farooque

    (University of New England)

  • Asma Mobarek

    (Stockholm University)

Abstract

We examine whether the difference in governance structures influences the risk taking and performance of Islamic banks compared to conventional banks. Using a sample of 52 Islamic banks and 104 conventional banks in 14 countries for the period from 2005 to 2013, we conclude that the governance structure in Islamic banks plays a crucial role in risk taking as well as financial performance that is distinct from conventional banks. Particularly, we show that the governance structure in Islamic banks allows them to take higher risks and achieve better performance because of product complexities and transaction mechanisms. However, Islamic banks maintain a higher capitalization compared to conventional banks. These results support the research on Islamic investment and risk taking. Our results add a new dimension to the governance research that could be a valuable source of knowledge for policy makers and regulators in the financial services sector.

Suggested Citation

  • 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.
    • Handle: RePEc:kap:jfsres:v:51:y:2017:i:2:d:10.1007_s10693-016-0245-2
    DOI: 10.1007/s10693-016-0245-2
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    More about this item

    Keywords

    Corporate governance; Risk-taking; Firm performance; Islamic banks;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • Y90 - Miscellaneous Categories - - Other - - - Other
    • G01 - Financial Economics - - General - - - Financial Crises

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