Does the Shariah committee influence risk-taking and performance of Islamic banks in Malaysia?
Journal of Islamic Accounting and Business Research
ISSN: 1759-0817
Article publication date: 28 July 2020
Issue publication date: 31 August 2020
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
Acknowledgements
This study was conducted while the corresponding author was a fellow at the Oxford Centre for Islamic Studies. The author is grateful to the Securities Commission Malaysia and Oxford Centre for Islamic Studies for giving her the opportunity to participate in the SC-OCIS Visiting Fellowship programme
Citation
Isa, M. and Lee, S.-P. (2020), "Does the Shariah committee influence risk-taking and performance of Islamic banks in Malaysia?", Journal of Islamic Accounting and Business Research, Vol. 11 No. 9, pp. 1739-1755. https://doi.org/10.1108/JIABR-12-2018-0207
Publisher
:Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited