Corporate Governance and Performance in Islamic and Conventional Financial Institutions: Moderating Role of Institutional Quality

Muhammad Akmal, Abdul Rashid, Syed Muhammad Abdul Rehman Shah and Jamshid ur Rehman ()
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Muhammad Akmal: MCB Islamic Bank Ltd, Pakistan
Abdul Rashid: International Institute of Islamic Economics, International Islamic University, Islamabad, Pakistan
Syed Muhammad Abdul Rehman Shah: Department of Humanities & Social Sciences, University of Engineering and Technology, Taxila, Pakistan
Jamshid ur Rehman: Department of Management Sciences, Khushal Khan Khattak University, Karak, Pakistan

Audit and Accounting Review, 2024, vol. 4, issue 1, 54-80

Abstract: This study explores the impact of corporate governance (CG) indicators on the financial performance of Islamic and conventional financial institutions. It also scrutinizes the impact of institutional quality (IQ) as a moderator in the nexus between corporate governance and performance. The study also examines a panel dataset of Pakistani financial institutions for the period 2006-2017. The estimation of a two-step system GMM signifies that CG significantly contributes towards improving the overall performance of financial institutions (FIs). However, the results display differential effects of CG on the performance of Islamic financial institutions (IFIs) and conventional financial institutions (CFIs). Moreover, institutional quality (IQ) significantly moderates and shapes the impact of CG on the performance of both types of FIs. Hence, institutional quality is an important element in strengthening the contributions of CG in increasing the performance of FIs. The study provides important suggestions to policymakers to improve the quality of institutions by implementing the rule of law and controlling corruption. This may enhance the effectiveness of CG and consequently institutional performance.

Keywords: conventional financial institutions (CFIs); corporate governance (CG); institutional quality (IQ); Islamic financial institutions (IFIs); performance (search for similar items in EconPapers)
JEL-codes: B52 F65 G23 G34 L25 (search for similar items in EconPapers)
Date: 2024
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