IDEAS home Printed from https://ideas.repec.org/a/rbs/ijfbss/v5y2016i4id340.html

An Empirical Study on Corporate Governance and Islamic Bank Performance

Author

Listed:
  • Sarwar Uddin Ahmed
  • Wali Ullah
  • Samiul Parvez Ahmed
  • Ashikur Rahman

Abstract

Corporate governance refers to the relationship present between the corporation and the stakeholders that determines and controls the strategic direction and performance of the corporation. Good corporate governance should provide adequate incentives for the board and management to pursue objectives that are in the interests of the company and shareholders, thereby encouraging firms to use resources more efficiently. However, the definition of accountability differs between conventional and Islamic Banks. Islam was made accountable not only to stakeholders, but also to Allah, the ultimate owner and authority. These powerful moral ethics help in promoting fair, just and honest business dealing. The aim of this study is to examine the relationship between corporate governance structures and the resultant financial performance of listed Islamic banks of Dhaka Stock Exchange (DSE) in Bangladesh. The panel time series data were collected for the time period of 6 years (2009-2014) from all the listed Islamic banks to run an Ordinary Least Squared (OLS) regression model to examine whether the existing corporate governance mechanisms as well as several other internal and external indicators are significant in influencing the financial performance. Preliminary findings suggest corporate governance mechanisms in Islamic banks are not quite as strong as they should be, hinting at possible market and management inefficiencies.

Suggested Citation

  • Sarwar Uddin Ahmed & Wali Ullah & Samiul Parvez Ahmed & Ashikur Rahman, 2016. "An Empirical Study on Corporate Governance and Islamic Bank Performance," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 5(4), pages 01-09, July.
    • Handle: RePEc:rbs:ijfbss:v:5:y:2016:i:4:id:340
    DOI: 10.20525/ijfbs.v5i4.478
    as

    Download full text from publisher

    File URL: https://ssbfnet.com/ojs/index.php/ijfbs/article/view/340
    File Function: Abstract page
    Download Restriction: no
    File URL: https://ssbfnet.com/ojs/index.php/ijfbs/article/download/340/318
    File Function: Full text
    Download Restriction: no
    File URL: https://libkey.io/10.20525/ijfbs.v5i4.478?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Habib Ahmed & Mohammad Umar Chapra, 2002. "Corporate Governance in Islamic Financial Institution (Occasional Paper)," Occasional Papers 93, The Islamic Research and Teaching Institute (IRTI).
    2. Beck, Thorsten & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2003. "Financial and legal institutions and firm size," Policy Research Working Paper Series 2997, The World Bank.
    3. Louis Amato & Christie Amato, 2007. "The Effects of Firm Size and Industry on Corporate Giving," Journal of Business Ethics, Springer, vol. 72(3), pages 229-241, May.
    4. Klapper, Leora F. & Love, Inessa, 2004. "Corporate governance, investor protection, and performance in emerging markets," Journal of Corporate Finance, Elsevier, vol. 10(5), pages 703-728, November.
    5. Masudul Alam Choudhury & Mohammad Nurul Alam, 2013. "Corporate governance in Islamic perspective," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing Limited, vol. 6(3), pages 180-199, August.
    6. Chong, Beng Soon & Liu, Ming-Hua, 2009. "Islamic banking: Interest-free or interest-based?," Pacific-Basin Finance Journal, Elsevier, vol. 17(1), pages 125-144, January.
    7. Abdullah Awadh Bukair & Azhar Abdul Rahman, 2015. "Bank performance and board of directors attributes by Islamic banks," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing Limited, vol. 8(3), pages 291-309, August.
    8. Abdullah Awadh Bukair & Azhar Abdul Rahman, 2015. "Bank performance and board of directors attributes by Islamic banks," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing Limited, vol. 8(3), pages 291-309, August.
    9. R. Alton Gilbert & David C. Wheelock, 2007. "Measuring commercial bank profitability: proceed with caution," Review, Federal Reserve Bank of St. Louis, vol. 89(Nov), pages 515-532.
    10. Sarwar Uddin Ahmed & Md. Ashikur Rahman & Samiul Parvez Ahmed & G. M. Wali Ullah, 2014. "Pricing Linkage between Islamic Banking and Conventional Banking:The Case of Bangladesh," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 3(4), pages 84-97, October.
    11. Baysinger, Barry D & Butler, Henry N, 1985. "Corporate Governance and the Board of Directors: Performance Effects of Changes in Board Composition," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 1(1), pages 101-124, Spring.
    12. Al-Malkawi, Husam-Aldin N. & Pillai, Rekha & Bhatti, M.I., 2014. "Corporate governance practices in emerging markets: The case of GCC countries," Economic Modelling, Elsevier, vol. 38(C), pages 133-141.
    13. Abdullah Awadh Bukair & Azhar Abdul Rahman, 2015. "Bank performance and board of directors attributes by Islamic banks," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing Limited, vol. 8(3), pages 291-309, August.
    14. Yoshikawa, Toru & Phan, Phillip H., 2003. "The Performance Implications of Ownership-driven Governance Reform," European Management Journal, Elsevier, vol. 21(6), pages 698-706, December.
    15. Cheng, Shijun, 2008. "Board size and the variability of corporate performance," Journal of Financial Economics, Elsevier, vol. 87(1), pages 157-176, January.
    16. Masudul Alam Choudhury & Mohammad Nurul Alam, 2013. "Corporate governance in Islamic perspective," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing Limited, vol. 6(3), pages 180-199, August.
    17. Abu-Tapanjeh, Abdussalam Mahmoud, 2009. "Corporate governance from the Islamic perspective: A comparative analysis with OECD principles," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 20(5), pages 556-567.
    18. Sarwar Uddin Ahmed & Ashikur Rahman & Samuel Parvez Ahmed & Wali Ullah, 2014. "Pricing Linkage between Islamic Banking and Conventional Banking: The Case of Bangladesh," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 3(4), pages 84-97, October.
    19. Noel Capon & John U. Farley & Scott Hoenig, 1990. "Determinants of Financial Performance: A Meta-Analysis," Management Science, INFORMS, vol. 36(10), pages 1143-1159, October.
    20. Masudul Alam Choudhury & Mohammad Nurul Alam, 2013. "Corporate governance in Islamic perspective," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing Limited, vol. 6(3), pages 180-199, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sarwar Uddin Ahmed & G. M. Wali Ullah & Samiul Parvez Ahmed & Ashikur Rahman, 2016. "An Empirical Study on Corporate Governance and Islamic Bank Performance: A Case Study of Bangladesh," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 5(4), pages 01-09, July.
    2. Albahlol Mohamed Alayat & Alhashmi Aboubaker Lasyoud & Ajab Khan & Irsyadillah Irsyadillah, 2026. "Corporate Governance and Sustainability Disclosure: Challenges and Opportunities for the Libyan Audit Bureau in the Oil Sector," Business Strategy and the Environment, Wiley Blackwell, vol. 35(1), pages 720-736, January.
    3. Fakir Al Gharaibeh & Waqas Mehmood & Ghada Baroud, 2025. "Systematic Literature Review of CSR in the GCC: Additional Insights From Social Contract Theory," SAGE Open, , vol. 15(3), pages 21582440251, September.
    4. Waqas Tariq & Adeel Tariq & Maria Nemilentseva, 2024. "Advancing Gender Equality in Banking: The Role of Female Directors and Board Monitoring in Driving Financial Performance," Journal of Economic Sciences, Federal Urdu University Islamabad, Department of Economics, vol. 3(2), pages 227-244, December.
    5. Houda Ben Said, 2026. "Shari’ah supervisory board characteristics and market value in MENA Islamic banks gender diversity and independence do not matter," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 23(1), pages 113-125, March.
    6. Shahid, Ahmad Usman & Patel, Chris & Pan, Peipei, 2025. "Islamic worldview, social consciousness, and socially responsible investment," Advances in accounting, Elsevier, vol. 68(C).
    7. Sofi Mohd Fikri & Mohamed Hisham Yahya & Taufiq Hassan, 2017. "A Review on Agency Cost of Shariah Governance in Mutual Fund," International Journal of Economics and Financial Issues, International Journal of Economics and Financial Issues, vol. 7(1), pages 530-538.
    8. Rodolfo Fialho Perondi & Bento Alves da Costa Filho & Alcido Elenor Wander, 2021. "Impact of Board of Directors on Performance of Brazilian Banks," International Journal of Business Administration, International Journal of Business Administration, Sciedu Press, vol. 12(3), pages 42-56, May.
    9. del Carmen Briano-Turrent, Guadalupe & Poletti-Hughes, Jannine, 2017. "Corporate governance compliance of family and non-family listed firms in emerging markets: Evidence from Latin America," Journal of Family Business Strategy, Elsevier, vol. 8(4), pages 237-247.
    10. Afef Khalil & Imen Ben Slimene, 2021. "Financial soundness of Islamic banks: does the structure of the board of directors matter?," Post-Print hal-03451470, HAL.
    11. Nizar Yousef Ahmed Naim & Nora Azureen Abdul Rahman, 2023. "The Effects of Internal Governance Factors on Lending Portfolio Composition in Islamic Banks," IJFS, MDPI, vol. 11(3), pages 1-16, June.
    12. Abdullah, Wan Amalina Wan & Percy, Majella & Stewart, Jenny, 2015. "Determinants of voluntary corporate governance disclosure: Evidence from Islamic banks in the Southeast Asian and the Gulf Cooperation Council regions," Journal of Contemporary Accounting and Economics, Elsevier, vol. 11(3), pages 262-279.
    13. Panagiotis Staikouras & Christos Staikouras & Maria-Eleni Agoraki, 2007. "The effect of board size and composition on European bank performance," European Journal of Law and Economics, Springer, vol. 23(1), pages 1-27, February.
    14. Arunima Haldar & S. V. D. Nageswara Rao & Kirankumar S. Momaya, 2016. "Can Flexibility in Corporate Governance Enhance International Competitiveness? Evidence from Knowledge-Based Industries in India," Global Journal of Flexible Systems Management, Springer;Global Institute of Flexible Systems Management, vol. 17(4), pages 389-402, December.
    15. Lee, Shih-Cheng & Lin, Chien-Ting, 2010. "An accounting-based valuation approach to valuing corporate governance in Taiwan," Journal of Contemporary Accounting and Economics, Elsevier, vol. 6(2), pages 47-60.
    16. Attiya Y. Javid & Robina Iqbal, 2010. "Corporate Governance in Pakistan : Corporate Valuation, Ownership and Financing," Governance Working Papers 22830, East Asian Bureau of Economic Research.
    17. Omar Farooque & Wonlop Buachoom & Nam Hoang, 2019. "Interactive effects of executive compensation, firm performance and corporate governance: Evidence from an Asian market," Asia Pacific Journal of Management, Springer, vol. 36(4), pages 1111-1164, December.
    18. Fumitoshi Mizutani & Eri Nakamura, 2014. "Managerial incentive, organizational slack, and performance: empirical analysis of Japanese firms’ behavior," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(1), pages 245-284, February.
    19. Dinah Natto & Thabang Mokoaleli-Mokoteli, 2025. "Short- and long-term impact of governance on firm performance in emerging and developed economies: a comparative analysis," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 22(3), pages 831-848, September.
    20. S. B. Adam* & A. M. H. Al-Aidaros & S. B. Ishak, 2018. "The Moderating Effect of Islamic Work Ethics on the Relationship Between Corporate Governance and Performance of Islamic Financial Institutions in Nigeria: A Proposed Framework," The Journal of Social Sciences Research, Academic Research Publishing Group, pages 1041-1048:6.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rbs:ijfbss:v:5:y:2016:i:4:id:340. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Hasan Dincer (email available below). General contact details of provider: https://edirc.repec.org/data/ssbffea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.