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Effect of board quality on the financial performance of conventional and Islamic banks: international comparative study after the Subprime crisis

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  • Achraf Haddad

Abstract

Purpose - The purpose of this research is to compare the board quality's (BQ) impacts on the financial performance (FP) of conventional and Islamic banks (IBs) after the Subprime financial crisis. The main reason is to help financial stakeholders choose the best performing and most appropriate bank type with its engagement based on the BQ index. Design/methodology/approach - Based on the existing gap in previous researches and by using the GLS method (Generalized Least Squares method), the author compared the BQ's impacts on the FP of conventional and IBs. Settings of the FP and BQ were collected from 30 countries located on 4 continents. Two equal samples were tested; each of them is composed of 112 banks. The author concentrated only on the banks that have published regularly the banks' annual reports over the period 2010–2018. Findings - Cylindrical panel results revealed that in conventional banks (CBs), the BQ has negatively affected banks' FP, while in IBs the BQ's impacts on the banks’' FP is ambiguous. Nevertheless, the positive impacts are more significant on the IBs' FP than the negative impacts on the IBs' FP. Practical implications - The main practical contribution is the identification and distinction between the impacts of board determinants' quality on the shareholders' profits in the case of conventional and IBs. Hence, conventional or IBs which have a bad BQ will generate less FP and will be classified as a lender of bankruptcy danger for the bank customer. Besides, whatever the bank type, in a financial stable period, good BQ positively influences FP and provides a good impression to stakeholders. Otherwise, FP indicates that the banks suffer from the weaknesses of the board quality determinants. Originality/value - Returning to the finance and banking governance literature, the author's article provides the first conditional and demonstrative analysis that detailed a logical comparative process to analyze the correlation between the board determinants' quality and the financial performance of conventional and IBs. However, previous research has always discussed the main role of the board as an internal governance mechanism on the FP separately in each bank type.

Suggested Citation

  • Achraf Haddad, 2022. "Effect of board quality on the financial performance of conventional and Islamic banks: international comparative study after the Subprime crisis," Journal of Accounting in Emerging Economies, Emerald Group Publishing Limited, vol. 13(2), pages 399-449, June.
    • Handle: RePEc:eme:jaeepp:jaee-01-2021-0004
    DOI: 10.1108/JAEE-01-2021-0004
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    More about this item

    Keywords

    Conventional Banks (CBs); Islamic Banks (IBs); Board of Directors (BOD); Board Quality (BQ); Financial Performance (FP); Comparative study; Financial stability period; F39; G1; G20; G21; G30; G33;
    All these keywords.

    JEL classification:

    • F39 - International Economics - - International Finance - - - Other
    • G1 - Financial Economics - - General Financial Markets
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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