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What drives risk disclosure in Islamic and conventional banks? An international comparison

Rihab Grassa, Nejia Moumen and Khaled Hussainey

International Journal of Finance & Economics, 2021, vol. 26, issue 4, 6338-6361

Abstract: This paper examines and compares the relationship between risk disclosure and corporate attributes in Islamic and conventional banks. Using a comprehensive risk disclosure index covering nine dimensions, we analyse the level of risk‐related disclosure (RRD) in a sample of 72 Islamic banks and 97 conventional banks across 11 countries. The RRD index shows that Islamic banks disclose less information about risk comparing to conventional banks. Listed banks, larger banks and aged bank disclose more information about risk than the others. Block holders, foreign ownership and board size affect negatively risk disclosure. However, board independence and the percentage of foreign directors in the board affect positively risk disclosure. Moreover, banks with higher Tier 1 ratio disclose less information about risk. Our results encourages regulators to improve corporate governance mechanisms in their banking systems through the optimization of ownership structure (dispersed ownership) and the board's composition in order to promote higher level of transparency and RRD.

Date: 2021
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International Journal of Finance & Economics is currently edited by Mark P. Taylor, Keith Cuthbertson and Michael P. Dooley

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