Islamic Bank Audit Committee and Risk-Taking Behavior. A Conceptual Framework

This study intends to investigate the impact of bank audit committees’ composite and bank risk-taking behavior in Malaysia from 2010 to 2019. The audit committee is accountable for assuring the accuracy of financial reporting disclosure, interacting with internal and external audit functions to strengthen the controls’ function. The Islamic bank in Malaysia are required to adhere the Shariah compliance framework in their operational activities under the IFSA 2013. Following this, the Bank Negara of Malaysia (BNM) introduced new policy documents on corporate and Shariah governance in 2016 and 2019 respectively to further promote prudent risk management practices among Islamic banks in the nation. Audit committees play a crucial role in monitoring the risk-taking operations of banks to meet regulatory and relevant stakeholders’ compliance requirements. Existing literature acknowledges the role of audit committees’ effectiveness and corporate profitability performance relationship in non-banking sectors. This paper attempts to conduct an empirical study using the static panel data regression technique to examine the relationship between bank risk-taking and audit committees by comparing the composite changes over time to determine the effectiveness.