SHARIAH GOVERNANCE, RISK-TAKING AND PERFORMANCE OF INDONESIAN AND MALAYSIAN ISLAMIC BANKS

• Main Author: Indah Prahmila, Dianita
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/41283
• Institution: Institut Teknologi Bandung

Empirical studies of corporate governance in Islamic banking operations continue to grow. To further the studies, this paper aims to investigate the impact of Shariah governance on risk-taking and performance of Indonesian and Malaysian Islamic banks. Using hand collected data of board characteristics in 27 Islamic banks in Indonesia and Malaysia from 2006-2016, this paper concludes that Shariah Supervisory Boards (SSB) and Board of Commissioners (BoC) plays a crucial role in risk-taking as well as financial performance of Islamic banks. This paper highlights four important findings: (1) the presence of female directors in SSB and BoC tend to lower bank’s risk-taking and improve performance; (2) the presence of foreign SSB members are likely to induce risk-taking and reduce performance, while foreign BoC members induce performance and reduce bank’s risk-taking; (3) SSB member with finance/economy type of educational background tends to lower credit risk and Shariah non-compliance risk, while BoC member with Islamic education is likely to lower the four type of risks: insolvency risk, funding risk, credit risk, and Shariah non-compliance risk; (4) SSB members whose also enriched with financial educational background and BoC members with Islamic educational background are likely to increase Islamic bank’s performance. The findings of this research may help policymakers and regulators in the financial service sector for devising strategies to deal with competitive market or future financial crisis.