Does the Shariah committee influence risk-taking and performance of Islamic banks in Malaysia?

Mansor Isa and Siew-Peng Lee

Journal of Islamic Accounting and Business Research, 2020, vol. 11, issue 9, 1739-1755

Abstract: Purpose - This study aims to investigate how the Shariah committee in Islamic banks affects banks’ risk-taking behaviour and performance. Design/methodology/approach - The sample is based on a panel data of 15 Islamic banks in Malaysia over the period 2007–2016. The generalised least squares random-effects method is used to study the relationship between the Shariah committee and bank risk-taking and performance. Findings - The findings suggest that the number of committee members with Shariah qualification and the number of reputable members are negatively related to risk-taking while members with finance/banking qualifications are positively related. On the financial performance, evidence of two variables that are positively related to performance, namely, members with finance/banking qualification and reputable members was found. Female participation is weakly negatively related to risk-taking but unrelated to performance. Other variables, such as committee size, years of experience and frequency of meetings, are found to be unrelated to risk-taking and performance. Practical implications - The paper points to two implications. First, the roles and functions of the Shariah committee should be revised to emphasise Shariah-compliance, as well as the business aspects of the banking operations. Second, the regulators should also look at the composition of the Shariah committee to ensure a diversity of expertise related to the banking business. Originality/value - This paper extends the scope and coverage of previous studies by investigating the attributes of the Shariah committee, which could be important in influencing the risk-taking behaviour and performance of banks.

Keywords: Risk-taking; Shariah committee; Bank performance; Islamic banks (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jiabrp:jiabr-12-2018-0207

DOI: 10.1108/JIABR-12-2018-0207

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