Do board characteristics affect bank performance? Evidence from the Bahrain Islamic banks

Abstract

Purpose Although most previous studies interested in Islamic banks have focused on quantitative aspects such as performance, risk and stability, this paper aims to deal with the institutional dimension and focus precisely on the link between board characteristics and bank performance. Design/methodology/approach Based on a data related to 13 banks in Bahrain observed over the period of 2005-2011, this study investigates the impact of board directors on the level of performance. To this end, the authors have used two empirical approaches. The first one is the panel data analysis with regard to random effect (RE) regression. The second one is the generalized method of moments (GMM) in system, which checked the soundness of the first result. Findings The result of RE regression indicates that the board duality is positively and significantly correlated with the bank performance for both ROA (return on assets) and ROE (return on equity). However, the board size exerts a positive and significant impact only when profitability is measured by ROE. The authors find that regression with GMM in system confirms the RE result exclusively for ROE. Findings also indicate that a financial crisis exerts a negative but not significant effect on bank performance. Practical implications These findings are relevant to both policymakers and regulators. Islamic banks in Bahrain should grant more importance to the structure and the quality of the board to improve their performance. Originality/value This study aims to extend the existing literature by focusing about the role of the Shariah board in bank performance.

Evaluation Study: Does The Sharia Supervisory Board Have A Direct Effect on Profitability?

“…The first study provides empirical evidence on the total SBB members, which is one of the measures used to explain the role of SSB, has a positive effect on profitability as measured by ROA Nomran, Haron, & Hassan, 2018;Farag, Mallin, & Ow-Yong, 2018;Mukhibad & Khafid, 2018). However, Hakimi, Rachdi, Mokni, and Hssini (2018); Ardana (2019); Grassa and Matoussi, (2014) also Mollah and Zaman (2015) stated that the total SBB members do not have a positive effect on ROA. Another indicator used to measure profitability is ROE.…”

“…Another indicator used to measure profitability is ROE. According to Hakimi et al (2018); Grassa and Matoussi (2014) also Mollah and Zaman (2015), there are no relationships between the total SBB members with ROE. Furthermore, ; Nomran et al (2018); and Farag, Mallin, and Ow-Yong (2018) reported that the total SBB had a positive effect on ROE.…”

Relevance ofShari’ahGovernance in Driving Performance of Islamic Banks during the Financial Crisis: International Evidence

“…This chapter uses an unbalanced panel data of 66 IBs over 18 countries over the period 2007-2015 after eliminating banks with insufficient data on Shari'ah governance and performance. We choose the sample's starting period of 2007 in order to 2 Several variables relating to the SSB characteristics may determine how effective the SSB is in conducting its task, namely, SSB size, doctoral qualification, reputation, cross-membership and expertise [29,19,[30][31][32].…”

“…Dummy interaction is employed following literature[39] 4. To capture the crisis impact, dummy interaction is employed following literature, in which: "1" for the period 2007-2009, otherwise "0"[31].…”

The Independence Of The Shariah Committee Of Islamic Financial Institutions In Malaysia: Legal Analysis

“…Shariah Committee (hereinafter referred to as "SC") plays a vital role by advising and supervising the operation of Islamic financial institutions in ensuring that the Islamic financial business carried out by Islamic financial institutions comply with the Shariah principles (Hidayat & Khalifa, 2018). SC is also considered as a key element (Hakimi, Rachdi, Mokni & Hssini, 2018) and the most crucial component in the governance framework of Islamic financial institutions (Grassa, 2013). The independence of the SC in discharging their duties and responsibilities is the essential element in ensuring the credibility of the institutions (Hassan, Othman, Salleh & Hussain, 2016).…”