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The Impact of Corporate and Shari’ah Governance on the Risk Profile of Islamic Financial Institutions

Author

Listed:
  • Muhammad Akmal

    (Shari’ah Compliance, MCB Islamic Bank Limited Pakistan, Pakistan)

  • Syed Muhammad Abdul Rehman Shah

    (Department of Islamic Economics, Allama Iqbal Open University Islamabad, Pakistan)

  • Awais ur Rehman

    (Faculty of Economics and Business, University Malaysia Sarawak (UNIMAS), Malaysia)

  • Muhammad Shehryar

    (Department of Economics and Business Sciences, Rey Juan Carlos University, Madrid, Spain)

Abstract

This study analyzes the effects of corporate and Shari’ah governance on risk-taking practices in Islamic financial institutions in Pakistan. It also investigates the role of institutional quality in moderating these effects. A sample of 28 institutions over the period 2011–2022, including Islamic commercial banks, Takaful operators and Modarba companies, was utilized for the analysis. Applying the generalized method of moments (GMM) estimator, the results suggest that several individual characteristics of corporate governance and its index are significantly related to Shari’ah non-compliance and solvency risk. The findings also reveal that institutional quality significantly contributes to the lowering of risk. It is recommended that modern corporate and Shari’ah governance practices be adopted to manage both Shari’ah non-compliance and solvency risk.

Suggested Citation

  • Muhammad Akmal & Syed Muhammad Abdul Rehman Shah & Awais ur Rehman & Muhammad Shehryar, 2026. "The Impact of Corporate and Shari’ah Governance on the Risk Profile of Islamic Financial Institutions," Journal of Islamic Monetary Economics and Finance, Bank Indonesia, vol. 12(2), pages 263-282, June.
    • Handle: RePEc:idn:jimfjn:v:12:y:2026:i:2b:p:263-282
    DOI: https://doi.org/10.21098/jimf.v12i2.2089
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    Keywords

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    JEL classification:

    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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