Effectiveness of board of directors and risk-taking: the mediating role of Shari’ah supervisory board of Bangladesh Islamic financial institutions

Md. Mohidul Islam, Md. Aminul Islam, Md. Sharif Hassan and Rula AlHalaseh

International Journal of Islamic and Middle Eastern Finance and Management, 2025, vol. 18, issue 3, 557-576

Abstract: Purpose - This study aims to assess the effectiveness of the Shari’ah supervisory board (SSB) and its impact on risk-taking in the presence of a strong and effective board of directors (BoD) among Islamic financial institutions (IFIs) in Bangladesh. Design/methodology/approach - This study is conducted as a sample and extracted data from bank annual reports of 16 IFIs in Bangladesh from 2011 to 2020. To overcome the endogeneity, the research has applied the two-step systems generalized method of moments model with Arellano−Bover and Blundell−Bond estimators. Findings - The results indicated that the indices of BoD and SSB negatively influence each other’s credit risk, particularly in the Southeast Asian context, focusing on IFIs in Bangladesh. In addition, the SSB mediated risk-taking positively when coupled with a strong BoD. Practical implications - This paper emphasizes how the multiple board systems and their impact on risk-taking make the unique governance structure. Risk-sharing, avoiding fixed-up interest rates and ethical investing are controlled by the dual board’s contributions to financial stability. SSB contributes significantly to improve the regulatory coordination and product innovation in the global financial system to combat unethical profits from society. Originality/value - This study contributes to the literature gap of the dual board’s role of governance. It is believed to be one of the first studies that provide empirical evidence and theories on SSB’s mediating role in the context of socio-economic, cultural and policy with other similar contexts of subcontinent particularly in Bangladeshi’s IFIs.

Keywords: Credit risk; Dual board structure; Islamic banks; Non-performing loan; Shari’ah supervisory board (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:imefmp:imefm-04-2024-0204

DOI: 10.1108/IMEFM-04-2024-0204

Access Statistics for this article

International Journal of Islamic and Middle Eastern Finance and Management is currently edited by Dr Syed Aun Raza Rizvi

More articles in International Journal of Islamic and Middle Eastern Finance and Management from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().