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Sharia Supervision Board, Board Independence, Risk Committee and Risk-taking of Islamic Banks in Malaysia

Author

Listed:
  • Zulkufly Ramly

    (Department of Finance, International Islamic University Malaysia, Gombak Campus, 53100 Kuala Lumpur, Malaysia,)

  • Nurusysyifa Nordin

    (Department of Finance, International Islamic University Malaysia, Gombak Campus, 53100 Kuala Lumpur, Malaysia,)

Abstract

This paper investigates the moderating effects of Sharia Supervision Boards (SSBs) on the links between board independence and risk committee (RC) independence and Islamic banks' (IBs) risk-taking in Malaysia from 2010 to 2015. The paper highlights four important findings: (1) SSB's expertise in Sharia and banking-related areas lower credit risk, (2) higher board independence is likely to reduce credit risk when SSBs consist of Sharia advisors with expertise in Sharia and banking-related areas, (3) higher RC independence is likely to reduce credit risk when SSBs consist of Sharia advisors with expertise in Sharia and banking-related areas and (4) the reducing effect of RC on credit risk is conditional upon higher participation of female Sharia advisors in SSBs. This study suggests that the resources in terms of valuable experience that SSB advisors bring to IBs combined with the typical oversight mechanisms such as board independence and RC as suggested by corporate governance literature are beneficial to control risk-taking in the Malaysian IBs. Further, this paper demonstrates that integrating agency theory and resource dependence view in a corporate governance study produces a more meaningful result.

Suggested Citation

  • Zulkufly Ramly & Nurusysyifa Nordin, 2018. "Sharia Supervision Board, Board Independence, Risk Committee and Risk-taking of Islamic Banks in Malaysia," International Journal of Economics and Financial Issues, Econjournals, vol. 8(4), pages 290-300.
    • Handle: RePEc:eco:journ1:2018-04-37
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    Cited by:

    1. Asma Hkimi & Neila Boulila Taktak, 2022. "Managing the Risks of Investment Deposit Account in Islamic Banks: An Examination of Mudharaba Contract Between MENA and International Markets," Springer Books, in: Abdelghani Echchabi & Rihab Grassa & Welcome Sibanda (ed.), Contemporary Research in Accounting and Finance, pages 195-216, Springer.
    2. Yunieta Anny Nainggolan & Dianita Indah Prahmila & Annisa Rizkia Syaputri, 2023. "Do board characteristics affect bank risk-taking and performance? Evidence from Indonesian and Malaysian Islamic banks," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 27(4), pages 1115-1145, December.

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    More about this item

    Keywords

    Islamic Banks; risk-taking; SSB;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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