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Does Corporate Governance add value to Islamic banks? A quantitative analysis of cost efficiency and financial stability

Author

Listed:
  • Christos Alexakis

    (Rennes School of Business, France)

  • Khamis Al-Yahyaee

    (Department of Economics and Finance, Sultan Qaboos University, Oman)

  • Emmanuel Mamatzakis

    (University of Sussex Business School, UK; Rimini Centre for Economic Analysis)

  • Asma Mobarek

    (Cardiff Business School, Cardiff University, UK)

  • Sabur Mollah

    (Hull University Business School, University of Hull, UK)

  • Vasileios Pappas

    (School of Management, University of Kent, UK)

Abstract

In this paper, we examine the impact of corporate governance practices on cost efficiency and financial stability for a sample of Islamic and conventional banks. In our analysis we use a set of corporate governance variables which include, board size, board independence, director gender, board meetings, board attendance, board committees, chair independence and CEO characteristics. The above corporate governance data set was constructed by the study of annual reports and other documents of Islamic banks, and is unique in this field. In our analysis we employ stochastic frontier analysis and panel VAR (PVAR) models in order to quantify long run and short run statistical relationships between operational efficiency of Islamic banks and corporate governance practices. According to our results, Islamic and conventional banks exhibit important differences in the effects of corporate governance practices on cost efficiency and financial stability. Our results warrant caution when Islamic banks select international corporate governance practices. A blind general adoption of corporate governance practices of conventional banks might lead to losses in terms of efficiency of Islamic banks as such adoption of, for example, a third layer of binding practices over and above the already existing ones imposed by the Sharia Board and the Board of Directors may lead to cumbersome business operations. In this respect we believe that our results may be of a certain value to regulators, policy makers and managers of Islamic banks.

Suggested Citation

  • Christos Alexakis & Khamis Al-Yahyaee & Emmanuel Mamatzakis & Asma Mobarek & Sabur Mollah & Vasileios Pappas, 2018. "Does Corporate Governance add value to Islamic banks? A quantitative analysis of cost efficiency and financial stability," Working Paper series 18-40, Rimini Centre for Economic Analysis.
  • Handle: RePEc:rim:rimwps:18-40
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    References listed on IDEAS

    as
    1. Mariani Abdul-Majid & David Saal & Giuliana Battisti, 2010. "Efficiency in Islamic and conventional banking: an international comparison," Journal of Productivity Analysis, Springer, vol. 34(1), pages 25-43, August.
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    More about this item

    Keywords

    Islamic banking; corporate governance; stochastic frontier analysis; panel VAR;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • 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
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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