Shari’ah governance and transparency: evidence from stock price synchronicity of Islamic banks

Majdi Anwar Quttainah and Yosra BenSaid

International Journal of Islamic and Middle Eastern Finance and Management, 2024, vol. 17, issue 3, 572-598

Abstract: Purpose - The purpose of this study is to investigate internal governance mechanisms factors, focusing onShari’ah-based governance mechanisms that affect the price synchronicity of Islamic banks (IBs). Design/methodology/approach - This study analyzes and compares the effect ofShari’ahand regular governance mechanisms on stock price synchronicity over 2013–2022 using a sample of 51 listed IBs in 13 countries in the Middle East and South Asia region. Using generalized least square method, this paper tests nine hypotheses addressingShari’ahand regular governance mechanisms. Findings - The findings generally reveal thatShari’ah-based governance mechanisms have a significant impact on the stock price synchronicity of IBs. The main determinants of stock price synchronicity among IBs are SSB size, SSB diversity, SSB members’ qualifications in finance Islamic jurisprudence and SSB interlocks.Shari’ahgovernance plays a detrimental role in improving the association between bank stock price synchronicity and transparency. Research limitations/implications - This paper includes three main limitations that may affect the accuracy of the findings. First, this paper relied on publicly available financial statements of IBs online. Hence, the data in this study is from few IBs in each country, which limits the analysis given the reliance is on the best-performing IBs in the country. Second, the results are restricted to the Middle East and South Asia and may not be generalized to other regions. Third, the sample is dominated by Middle East countries (i.e. 37 IBs out of 51). Practical implications - BothShari’ahgovernance and regular governance have an impact on the transparency of IBs. Policymakers or regulators could encourage IBs to embed SSBs into their internal governance structure for the positive impact the SSBs attributes have on stock price synchronicity and transparency. Originality/value - This research studies IBs, unlike most other works that focus on firms.

Keywords: Stock price synchronicity; Transparency; Shari’ah Supervisory Board attributes; Corporate board attributes; Islamic banks and corporate governance; G30; G31; G34; G38 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eme:imefmp:imefm-10-2023-0402

DOI: 10.1108/IMEFM-10-2023-0402

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