Exploring the Nexus between Shariah Supervisory Board and Islamic Banks’ Performance: Moderating Role of Corporate Governance

Abstract

The global financial crisis (GFC) from 2007 to 2009 had a significant effect on the performance of the global banking and financial area. The reason for this insolvency and financial disaster was very horrible and the financial world observed this crunch in past. The main reason was corporate governance weakness and lack of monitoring. Although CG played a role in sustaining the financial performance but was not successful in improving this area further, the present study hypothesizes a mechanism to strengthen and protect a Shariah governance framework and sustainability performance of IB’s. Moreover, a careful extent of the Shariah governance (SG) mechanism impacts IB’s performance and how the board of directors moderates this relationship. Therefore a careful investigation of the extent of SG literature enables the improvement of exploration context. The current research has extracted a significant framework from influential theories such as agency theory, stewardship theory and stakeholder theory and recognized the association with justifiable performance. The study comprises the independent variable Shariah advisory board (Shariah board size, and Shariah board interlock, Shariah board meetings) and the dependent variable IB’s performance (ROA and ROE). The study used ordinary least squares   (fixed and random model) for the estimation of the data analysis. The results indicate a significant positive moderating role in the relationship between the Shariah advisory board and IB’s performance. This research was conducted to report the demand and requirement for a Shariah governance framework and the moderating role of directors from the IBs. This positive point adds and contributes to the existing body of knowledge. This study is helpful for corporate boards, policymakers, researchers, and practitioners to improve the justifiable procedure.

Key words: Shariah Supervisory board, Islamic banking, Soundness, corporate governance