Impact of corruption on bank soundness: the moderating impact of Shari’ah supervision

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mushtaq Hussain Khan ◽  
Ahmad Fraz ◽  
Arshad Hassan ◽  
Syed Zohaib Hassan Kazmi
Keyword(s):  
Least Squares ◽  
Negative Impact ◽  
Supervisory Board ◽  
Positive Contribution ◽  
Islamic Banks ◽  
Least Squares Regression ◽  
Content Type ◽  
Conventional Banks ◽  
The Relationship ◽  
Bank Soundness

Purpose This study aims to examine whether the soundness of Islamic banks is differently affected by corruption compared to conventional counterparts. Moreover, the Shari’ah supervisory board (SSB), as a cornerstone of Islamic banking and representing a multi-layer corporate governance model, is expected to moderate the influence of corruption on soundness for Islamic banks. Design/methodology/approach This study considers a unique sample of 1,528 observations on 71 Islamic banks and 120 conventional banks operating in 11 emerging and developing Muslim countries over the 2010–2017 period. This study uses generalized least squares regression model and the coefficients are estimated by using random-effects estimator. In addition, to overcome a potential endogeneity concern for corruption and bank stability relationship, this study uses Two-Stage Least Squares regression instrumental variable estimator. Findings The authors find consistent evidence that higher levels of corruption adversely impact the soundness for conventional banks, in favor of the sand the wheel hypothesis in the corruption–development nexus. However, as expected, this study finds a less negative impact of corruption on soundness of Islamic banks. Moreover, SSB moderates the relationship between corruption and soundness of Islamic banks. The findings are robust to a battery of alternative checks. Research limitations/implications Findings of the paper regarding the detrimental impact of corruption on bank soundness justify the urgency of the anti-corruption campaigns in these countries, particularly for conventional banks. Moreover, the findings provide support for the positive contribution of SSBs to overcome the adverse effect of corruption on soundness of Islamic banks and thereby underscoring the need for enforcement and regulatory mechanism for SSBs to be more effective. Originality/value To the best of the authors’ knowledge, this is the first study to examine the moderating impact of Shari’ah supervision on the relationship between corruption and soundness of Islamic banks.

Can Shariah board characteristics influence risk-taking behavior of Islamic banks?

2019 ◽  
Vol 12 (4) ◽  
pp. 469-488 ◽  
Author(s):  
Amal AlAbbad ◽  
M. Kabir Hassan ◽  
Irum Saba
Keyword(s):  
Risk Taking ◽  
Supervisory Board ◽  
Annual Reports ◽  
Islamic Banks ◽  
Content Type ◽  
Asset Return ◽  
Board Characteristics ◽  
The Relationship ◽  
Risk Taking Behaviors ◽  
Practical Implications

Purpose The purpose of this paper is to study whether the characteristics of the Shariah Supervisory Board (SSB) can influence the risk-taking behaviors of Islamic banks. Design/methodology/approach The data on governance were collected from 70 Islamic banks’ annual reports across 18 countries for the period from 2000 to 2011 to investigate the relationship between SSB’s characteristics including size, busyness and foreign board and the Islamic banks’ risk activities. Findings The size of SSB and the proportion of busy board in SSB positively and significantly influence Islamic banks’ asset return and insolvency risks. Foreign members are more effective in monitoring banks’ Shariah compliance. Further analysis provides some evidence that most of the findings on the associations between the SSB structure and bank risk are derived from countries in the Gulf Cooperation Council where Shariah governance is ruled internally at the bank level. Practical implications There is a need for better Shariah board characteristics in place that complement with other governance mechanisms to well comprehend the main purpose of Islamic banks. Originality/value SSB board busyness and foreign characteristics appear to influence the risk-taking behaviors of Islamic banks.

Regulatory capital and stability of Islamic and conventional banks

2017 ◽  
Vol 10 (3) ◽  
pp. 312-330 ◽  
Author(s):  
Fakhri Korbi ◽  
Khemaies Bougatef
Keyword(s):  
Islamic Banks ◽  
Regulatory Capital ◽  
Bank Stability ◽  
Content Type ◽  
Failure Risk ◽  
Negative Effect ◽  
The Difference ◽  
Conventional Banks ◽  
The Stability ◽  
The Relationship

Purpose The purpose of this paper is twofold. First, it attempts to determine the factors that influence the stability of Islamic and conventional banks. Second, it focuses on the relationship between the regulatory capital and bank soundness. Design/methodology/approach Thus, the authors use the Z-score to assess the stability of Islamic and conventional banks operating in the Middle East and North Africa region over the period 1999 to 2014. Findings The comparative analysis reveals that Islamic banks seem to be less stable than their conventional peers. With regard to the determinants of bank stability, the findings suggest that the regulatory capital represents the primordial factor that reinforces the soundness of banking systems. The authors also find that bank stability depends on both bank-specific variables as well as macroeconomic and institutional variables. Interestingly, the corruption level turns out to have a significant negative effect on financial strength in the both types of banks. Originality/value The authors believe that investigating the relationship between regulatory capital and the failure risk in a comparative study between Islamic and conventional banks deserves a particular attention and looks very interesting because it will allow them to identify the difference between the factors explaining the failure risk of each type of banks. The authors also believe that the analysis of the relationship between corruption and bank stability is very interesting because corruption can be seen as an example of moral hazard which forces Islamic banks to use non-PLS instruments.

Whose cash compensation has more influence on real earnings management, CEOs or CFOs?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Radwan Alkebsee ◽  
Adeeb A. Alhebry ◽  
Gaoliang Tian
Keyword(s):  
Earnings Management ◽  
Least Squares ◽  
Real Earnings Management ◽  
Least Squares Regression ◽  
Content Type ◽  
Equity Compensation ◽  
Cash Compensation ◽  
Management Literature ◽  
The Relationship

PurposeScholars have investigated the association between executives' incentives and earnings management. Most of the extant literature focuses on equity executives' incentives, while most of the earnings management literature focuses on accrual earnings management (AEM), not real earnings management (REM). This paper investigates the association between chief executive officers’ (CEOs) and chief financial officer (CFOs) cash compensation and REM and explores who has more influence on REM, the CEO or the CFO.Design/methodology/approachThe authors use the data of all listed companies on the Shanghai and Shenzhen Stock Exchanges for the period from 2009 to 2017 and ordinary least squares regression as a baseline model and the Chow test to capture whether the CEO's or the CFO's cash compensation has more influence on REM. To address potential endogeneity issues, the authors use a firm-fixed effect technique and two-stage least squares regression.FindingsThe authors find that CEOs' and CFOs' cash compensation is significantly associated with REM, suggesting that paying non-equity compensation to the CEO and CFO is negatively associated with REM. The authors also find that the CFO's cash compensation has a more significant influence on REM than the CEO's cash compensation, suggesting that the CFO's accounting and financial knowledge strengthens his or her power on the quality of financial reporting.Practical implicationsThe study contributes to the literature of agency and contract theories by using cash-based compensation to provide strong evidence that CEO's and CFO's compensation is associated with REM. It also contributes to the earnings management literature by examining the effect of CEOs' and CFOs' cash compensation on earnings management using proxies for REM-related activities. The study also contributes to the institutional theory by providing empirical evidence on the governance role of executives' cash compensation in deterring REM. Finally, it is the first to examine the relationship between CEO's and CFO's cash compensation and REM, and the first to explore who is more influential regarding REM in emerging markets, the CEO or the CFO.Originality/valueAs a response to the call for investigations of the role of non-equity-based compensation in earnings management and the call to consider non-developed institutional contexts in governance research, this study extends prior studies by providing novel evidence on the relationship between CEOs' and CFOs' non-equity compensation and REM in China's emerging market. The study documents that the CFO has a greater influence on REM than the CEO does.

Gender diversity and financial performance of Islamic banks

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Huthayfa Nabeel Jabari ◽  
Rusnah Muhamad
Keyword(s):  
Financial Performance ◽  
Least Squares ◽  
Gender Diversity ◽  
Estimation Method ◽  
Supervisory Board ◽  
Ordinary Least Squares ◽  
Least Squares Estimation ◽  
Islamic Banks ◽  
Content Type ◽  
Gender Diverse

Purpose The purpose of this paper is to examine the influence of gender diversity among the board of directors (BOD) and Shariah supervisory board (SSB) members on the financial performance of Islamic banks in Indonesia and Malaysia. Design/methodology/approach Data for a sample of 19 Islamic banks for the period 2010–2018 were collected to test the research hypotheses using pooled ordinary least squares estimation method. Generalized least squares estimation method was used to confirm that the results are robust. This study lagged the explanatory variables by one period to control for potential endogeneity. Findings The findings suggest that Islamic banks with more gender-diverse BOD and SSB are expected to have better financial performance. In addition, this paper finds that an increase in Islamic banks’ size may undermine the positive impact of gender diversity among SSB members on Islamic banks’ financial performance. Research limitations/implications This study was conducted only on Islamic banks in Indonesia and Malaysia owing to data constraints; thus, the results may not be generalizable to Islamic banks in other countries. Practical implications Improving financial performance is crucial for banks, especially for Islamic banks, to sustain their fast-growing share globally. Therefore, the findings of this study are expected to provide insight and understanding in the selection and appointment of BOD and SSB members at Islamic banks. Social implications By having women represented in the BOD and SSB, Islamic banks will benefit equally from valuable abilities across demographic groups in the society. Furthermore, if the members of the BOD and SSB are properly selected, Islamic banks with more gender-diverse boards can effectively contribute to enhancing social welfare of various segments in the society. Originality/value This is the first study, as far as is known to the authors, that provides empirical evidence on the influence of gender diversity among BOD and SSB members on the financial performance of Islamic banks. This paper is expected to be used as a reference by the shareholders and customers of Islamic banks in ensuring that the BOD and SSB have the best optimal composition that maximizes their profits.

The role of religious norms, trust, importance of attributes and information sources in the relationship between religiosity and selection of the Islamic bank

2017 ◽  
Vol 8 (2) ◽  
pp. 158-186 ◽  
Author(s):  
Hardius Usman ◽  
Prijono Tjiptoherijanto ◽  
Tengku Ezni Balqiah ◽  
I. Gusti Ngurah Agung
Keyword(s):  
Information Source ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Traditional Group ◽  
Banking Services ◽  
Content Type ◽  
Conventional Banks ◽  
The Relationship ◽  
Intervening Variables

Purpose This paper aims to examine the assumption used in previous studies that all Muslims adopt and believe the same law on the prohibition of bank interest and to investigate the indirect effect of religiosity on customers’ decision for using Islamic banking services. Design/methodology/approach This study uses an exploratory approach and the natural experimental design with seemingly causal models. A total of 363 questionnaires were distributed to three groups of bank customers, i.e. Islamic banks customers, conventional banks customers and customers of both banks (121 respondents in each group). Findings The results show that the role of religiosity in the customers’ decision for using the Islamic banking services depends on religious norms variable. Religiosity affects the decision of customers in the traditional group, but it does not have any effect for the contemporary group. Other findings suggest that religiosity indirectly affects the decision for using the Islamic banks through intervening variables of trust and information source. Originality/value This is the first paper to investigate the relationship between religiosity and customers’ decision for using the Islamic banking services by considering the religious norm variable. This paper also examines indirect affects of religiosity to the Islamic banks’ choice through intervening variables of trust and information source.

scholarly journals The role of service quality within Indonesian customers satisfaction and loyalty and its impact on Islamic banks

2019 ◽  
Vol 11 (1) ◽  
pp. 192-212 ◽  
Author(s):  
Nur Asnawi ◽  
Badri Munir Sukoco ◽  
Muhammad Asnan Fanani
Keyword(s):  
Service Quality ◽  
Consumer Satisfaction ◽  
Mediating Effect ◽  
Mediation Effect ◽  
Islamic Banks ◽  
Content Type ◽  
Conventional Banks ◽  
The Relationship ◽  
Islamic Values

Purpose Loyalty among customers is the baseline for services to use to grow and sustain their competitive advantage, particularly in the banking industry. There are two primary objectives of this research. First, this study aims to empirically test the Muslim Consumer Service Quality (MCSQ). Second, this study aims to test the mediating effect of Muslim Consumer Satisfaction (MCS) on the relationship between MCSQ and Muslim Consumer Loyalty (MCL) in Indonesian Islamic banks. Design/methodology/approach The proposed hypotheses were tested by collecting data from 280 Indonesian Islamic customers. The collected data were tested using PLS-Graph 3.0. Findings The findings indicate that MCSQ (consisting of Islamic values, Sharia compliance, honesty, modesty, humaneness and trustworthiness) positively influenced MCS and MCL significantly. Further, the results indicate that MCS partially mediates the influence of MCSQ on MCL. Research limitations/implications The data were mainly gathered in Indonesia and the model needs to be tested in other contexts. Furthermore, the questionnaire was distributed among the customers of Islamic banks, and future studies could compare it with the customers of conventional banks or dual account (Islamic and conventional bank) customers. Moreover, further studies should compare between the expectations and reality of the delivered services to understand the service quality gap, which this study did not measure. Practical implications The findings indicate that by measuring the service quality in the Islamic context of Islamic banks, such as MCSQ, the managers can design their services to specifically target their Muslim customers. Furthermore, customer satisfaction must be the focus for the bank’s managers when developing MCSQ to close the gap between the expectations and reality of the delivered services. Originality/value This study empirically tests the developed MCSQ in the context of Indonesian Islamic banks, which is expected to enrich the literature of service marketing. Furthermore, a partial mediation effect of MCS was identified on the influence of MCSQ on MCL, which few studies have discussed previously.

scholarly journals Liquidity creation and bank performance: evidence from MENA

2019 ◽  
Vol 11 (1) ◽  
pp. 27-45 ◽  
Author(s):  
Ahmad Sahyouni ◽  
Man Wang
Keyword(s):  
Commercial Banks ◽  
Data Availability ◽  
Bank Performance ◽  
Islamic Banks ◽  
Content Type ◽  
Mena Countries ◽  
And Performance ◽  
Conventional Banks ◽  
The Relationship ◽  
Conventional And Islamic Banks

Purpose Islamic banks have significantly different balance sheets from their conventional counterparts, leading to different implications in relation to liquidity creation compared to conventional banks. This work, first, investigates the liquidity creation of conventional and Islamic banks in Middle Eastern and North African (MENA) countries between 2011 and 2016. It then tests the relationship between liquidity creation and performance of these banks. Design/methodology/approach It uses the data of 491 commercial banks across 18 MENA countries between 2011 and 2016. The analysis is based on panel data techniques. Findings The banks created US$18.596 trillion of liquidity, about 28.4% of total assets. Conventional banks created more liquidity compared with Islamic banks. Nevertheless, Islamic banks created more liquidity per asset compared with conventional banks. The regression analysis revealed a significant and negative correlation between liquidity creation and performance of the banks using return on average equity (ROAE) measure. However, no significant relationship is observed between liquidity creation and return on average assets (ROAA) of MENA banks. Moreover, there is no difference between Islamic and conventional banks in the relation between liquidity creation and bank performance. Research limitations/implications The data are limited to the period 2011-2016; the period of this study was selected based on yearly data availability from the data source. Accounting measures were used to study the effect of liquidity creation on bank profitability, and the market-based measures were excluded, as there is no uniform sources in these countries that can be used to collect market-based data. Practical implications Bank managers must reach a trade-off between the advantages and disadvantages of liquidity creation, as well as consider the negative relationship between liquidity creation and bank performance when making their decisions. Originality/value First, to the best of the authors’ knowledge, this work is the first to analyse the relationship between the liquidity creation and performance of conventional and Islamic banks in MENA. Second, this study uses a sample of Islamic and conventional banks in MENA that have detailed information on the Orbis Bank Focus dataset, which is the most comprehensive database of commercial banks in the MENA region.

scholarly journals Bank efficiency and practice of earnings management: a study on listed commercial banks of Bangladesh

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Naznin Sultana Chaity ◽  
K.M. Zahidul Islam
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Commercial Banks ◽  
Islamic Banks ◽  
Loan Loss ◽  
Bank Efficiency ◽  
Content Type ◽  
Empirical Results ◽  
Conventional Banks ◽  
The Relationship

PurposeThe purpose of the study is to determine the relationship between bank efficiency in terms of corporate governance guidelines and the extent of practice of earnings management (EM).Design/methodology/approachArchival data of listed private commercial banks of Dhaka Stock Exchange over the period of 2007–2016 relating to corporate governance and earnings management are collected and analyzed using parametric and non-parametric methods (efficiency analysis) and applying panel regression analysis.FindingsThe same distribution pattern and have low degree of the correlation (0.248) among them. It is found that private commercial banks of Bangladesh, on average, display efficiency level of 80.84%. The average value of discretionary loan loss provision (i.e. measure of earnings management) is 0.4249 and this indicates the presence of earnings management. The relation between earnings management and efficiency score in both cases of two-step system generalized methods of moments (GMMs) and difference GMM are found to be negative. The negative coefficients (−0.7969 and −0.57) indicate that as the efficiency increases, the practice of earnings management by the private commercial bank reduces. By estimating efficiency based on corporate governance guidelines and detecting the existence of EM, the major contribution of the study is establishing the relationship between bank efficiency based on compliance with corporate governance guidelines and managerial practice of earnings management in Bangladesh. Empirical results of the study have also established the fact that the more efficient the management of the banks are, the less likely it will practice earnings management under the compliance of corporate governance guidelines in Bangladesh.Research limitations/implicationsThis research study has some limitations. Only conventional banks are considered for the study, with the exception of Islamic banks. Comparison between conventional banks and Islamic banks could have been done.Practical implicationsBased on the literature study, the effectiveness of corporate governance aligns with decreasing agency conflict, protection of shareholders' interests and restrain management from self-serving activities (i.e. practice of earnings management). The empirical results of the study established these facts. Regulators should give more emphasis on effective implementation of good governance.Originality/valueTo the best of the authors' knowledge, this may be the first to empirically determine the relationship between efficiency estimation based on corporate governance and earnings management in case of listed commercial banks of Bangladesh.

The effect of diversification on risk and return in banking sector

2019 ◽  
Vol 15 (1) ◽  
pp. 100-128 ◽  
Author(s):  
Ritab AlKhouri ◽  
Houda Arouri
Keyword(s):  
Banking Sector ◽  
Negative Impact ◽  
Positive Impact ◽  
Generalized Method Of Moments ◽  
Legal Protection ◽  
Developed Countries ◽  
Islamic Banks ◽  
Content Type ◽  
Interest Income ◽  
Conventional Banks

PurposeThe purpose of this paper is to investigate the effect of revenue diversification, non-interest income and asset diversification on the performance and stability of the Gulf Cooperation Council (GCC) conventional and Islamic banking systems.Design/methodology/approachThe authors implement a panel of 69 conventional and Islamic banks listed in six GCC markets over the period of 2003–2015, using the System Generalized Method of Moments methodology.FindingsNon-interest income diversification has a negative impact on GCC banks’ performance, while asset-based diversification affects banks performance positively. However, Investors tend to penalize the value of the banks’ assets, which are highly diversified. Government intervention, lack of competition, legal protection and high control of Central banks on GCC banks’ have positive impact on performance. Contrary to the results on conventional banks, asset diversification adds value to Islamic banks. Overall, both banks’ revenue and non-interest diversification have negative impact on GCC banks’ stability, while asset diversification improves Islamic banks’ stability.Research limitations/implicationsThe analysis is limited to a sample of banks, which are listed in the GCC stock exchanges. The lack of data on private and foreign banks operating in the region made the analysis and, consequently, the results specific to shareholding companies. Also, the authors’ measures of bank stability might not be appropriate to use for Islamic banks, given their banking models implemented.Practical implicationsResearch results provide important implications for regulators, bank managers and policy makers, as to the expected ways to support economic diversification through bank diversification strategies.Originality/valueUnlike related studies, the authors’ sample of homogeneous banks has a market structure that is different from the samples in the literature covering either developed countries or heterogeneous samples from both developed and developing countries. Furthermore, using an efficient econometric methodology, the authors deal with two types of banks: conventional banks and Islamic banks. The research determines which type of bank is more able to benefit from different types of diversification. Unlike previous research, this research explores the sensitivity of the results both to the regulatory environment of the GCC market and to general market conditions.

scholarly journals Perbandingan Implementasi Prinsip Good Corporate Governance pada Bank Konvensional dan Bank Syariah

2016 ◽  
Vol 2 (1) ◽  
pp. 39-45
Author(s):  
Andrew Shandy Utama
Keyword(s):  
Corporate Governance ◽  
Financial Services ◽  
Supervisory Board ◽  
National Committee ◽  
Research Use ◽  
Islamic Banks ◽  
Good Corporate Governance ◽  
Conventional Banks ◽  
Relationship Of ◽  
The Relationship

Abstract: In principle, the relationship between the bank and its customers are saving money in the bank based on the relationship of trust, so that each bank is required to have to continue to maintain the level of health. Solutions that can be taken by the banks, both conventional banks and Islamic banks, to maintain the existence and level of health is with the implementation of the principles of good corporate governance. Therefore, it is interesting to examine the comparison of implementation of the principles of good corporate governance in conventional banks and Islamic banks. The method used in this study is a normative legal research. This research use approach legislation. The results showed that in essence, the implementation of the principles of good corporate governance in conventional banks and Islamic banks are the 'same', because it refers to the "Code of Good Corporate Governance Indonesian Banking" issued by the National Committee on Governance (NCG). The fundamental difference lies in Islamic principles used by Islamic banks. In addition to guided and supervised by the Financial Services Authority as conventional banks, Islamic banks are also supervised by the National Sharia Board MUI and Sharia Supervisory Board who served in each Islamic bank. Keywords: The Principles of Good Corporate Governance

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