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Islamic banks’ equity financing, Shariah supervisory board, and banking environments

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  • Meslier, Céline
  • Risfandy, Tastaftiyan
  • Tarazi, Amine

Abstract

Although equity financing is a core value in Islamic finance, it is rarely used by Islamic banks which prefer other instruments such as markup or leasing contracts. The purpose of this paper is to investigate the potential determinants of equity financing. Shariah supervisory board (SSB) is regarded as crucial in promoting equity financing. We use hand-collected data on equity financing and governance structure of 88 Islamic banks in 16 countries between 2009 and 2014. Our findings reveal that Islamic banks’ equity financing is influenced by the characteristics of SSB. Specifically, the duality of SSB members positively affects equity financing whereas the existence of a Shariah department within banks has a negative impact. We also find that the role of SSB in Islamic banks is influenced by the characteristics of the board of directors (BOD) and the banking environments. The impact of SSB on equity financing is reduced in the better banking environment, possibly suggesting substitution role between SSB and institutional and Islamic environment.

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  • Meslier, Céline & Risfandy, Tastaftiyan & Tarazi, Amine, 2020. "Islamic banks’ equity financing, Shariah supervisory board, and banking environments," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    • Handle: RePEc:eee:pacfin:v:62:y:2020:i:c:s0927538x19305827
    DOI: 10.1016/j.pacfin.2020.101354
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    Cited by:

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    2. 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.
    3. Shabir, Mohsin & Jiang, Ping & Wang, Wenhao & Işık, Özcan, 2023. "COVID-19 pandemic impact on banking sector: A cross-country analysis," Journal of Multinational Financial Management, Elsevier, vol. 67(C).
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    5. Adil Saleem & Budi Setiawan & Judit Bárczi & Judit Sági, 2021. "Achieving Sustainable Economic Growth: Analysis of Islamic Debt and the Islamic Equity Market," Sustainability, MDPI, vol. 13(15), pages 1-12, July.
    6. Safiullah, Md, 2023. "Funding liquidity in Islamic banks: Does the Shariah supervisory board's higher educational attainment matter?," Pacific-Basin Finance Journal, Elsevier, vol. 78(C).

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    More about this item

    Keywords

    Profit and loss sharing; Equity financing; Governance; Shariah supervisory board; Environment; Islamic banks;
    All these keywords.

    JEL classification:

    • 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
    • Z12 - Other Special Topics - - Cultural Economics - - - Religion

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