The impact of the Shariah Board’s characteristics on the financial soundness of Islamic banks
Journal of Islamic Accounting and Business Research
ISSN: 1759-0817
Article publication date: 28 July 2020
Issue publication date: 6 December 2020
Abstract
Purpose
The purpose of this study is to examine the relationship between corporate governance and financial soundness of Islamic banks. Precisely, this study examines the Shariah Board’s characteristics and empirically diagnoses its impact on the financial soundness of Islamic banks.
Design/methodology/approach
In this case, the level of bank soundness is individually measured using the z-score indicator. Regression analyses are applied to test the impact of the Shariah Board’s characteristics on the financial soundness of Islamic banks, using a panel data set of 67 Islamic banks – covering 20 countries during the period 2005–2014.
Findings
The model shows that the size of the Shariah Board has a negative and significant impact on the financial soundness of Islamic banks. However, the Shariah scholar with knowledge in finance/accounting, the presence of Mufti, the interlocked Shariah scholar and the foreign Shariah scholar do not have any significant impact on the financial soundness of Islamic banks.
Practical implications
This study contributes to fill the gaps in the literature that discussed the Shariah Boards’ role in the governance of Islamic banks. In addition, it provides practical implications to the Shariah Boards’ members in the Islamic banks and calls for setting a sufficient number of scholars for each Shariah Board.
Originality/value
With this paper, the authors aim to clarify the relationship between Shariah Board and financial soundness of the Islamic banking, and provide additional insights to the emerging literature of Islamic banking. Contrary to previous research studies, the authors use an additional hypothesis, i.e. the presence of Mufti that has a positive and significant effect on the financial soundness of Islamic Banks. Methodologically, the authors incorporate a new measure to evaluate empirically the impact of Shariah Board members with knowledge of finance and accounting on the financial soundness of Islamic banks.
Keywords
Citation
Khalil, A. and Boulila Taktak, N. (2020), "The impact of the Shariah Board’s characteristics on the financial soundness of Islamic banks", Journal of Islamic Accounting and Business Research, Vol. 11 No. 9, pp. 1807-1825. https://doi.org/10.1108/JIABR-08-2018-0127
Publisher
:Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited