Corporate Governance and Risk Disclosures: A Comparative Analysis Between Bangladeshi and Malaysian Islamic Banks

Abstract

Corporate governance provides a fundamental framework to oversee corporate conduct and ensures transparency of institutions like banks. In case of Islamic banks, it adds additional importance as the profit sharing (with the depositors) system enhances the chance of agency problem for such institutions. Again, risks are inherent in institutions like Islamic banks, which necessitate the investors to get proper information about the risk encountered by the banks in which they invest. Thus, corporate governance and risk disclosures bear utmost importance. Since Malaysian banking industry has already experienced a favorable growth of Islamic banking and Bangladesh is observing a rapid growth of popularity of Islamic banking, a comparative study has been undertaken between Malaysian and Bangladeshi Islamic banks regarding corporate governance and risk disclosures in annual reports. Content analysis technique has been applied to facilitate the comparison. Both quantity and quality of risk reporting of the sample companies have been evaluated. A corporate governance disclosure index has been developed by following the guidelines provided by Bangladesh Security and Exchange Commission (BSEC) and the principles laid down in the ‘Guidelines on Corporate Governance for Licensed Islamic Banks in Malaysia’ to explore and compare the degree of good corporate governance and relevant disclosures in the annual reports. It is hypothesized that corporate governance and risk disclosure will vary between Malaysian and Bangladeshi Islamic Banks. It is also argued that the corporate risk disclosures will be positively associated with the quality of the firm’s corporate governance mechanisms. Results are generally supportive of hypotheses. At the end, implications for theory and practices are discussed in the study.

Genre Analysis of Risk Management Reports by an Islamic Financial Institution in Malaysia

“…Due to the function of the step, it has appeared throughout the five years. It is also worth noting that window dressing (Kabir et al, 2019) is also evident here. The example of the step can be seen in Example 2.1 which informs how the bank highlights RMF in guiding the risk management using its elements.…”

“…However, a number of studies agreed that Islamic banks were prone to more risks due to their adherence to the shariah law (see Hemrit, 2019;Alam et al, 2018;Khan et al, 2017). The Malaysian Islamic banks showed better risk disclosures than the foreign Islamic banks (Kabir et al, 2019;Chong et al, 2019). Kabir et al (2019) found that the reports by the Malaysian Islamic banks were better than those reported in Bangladesh as the risk information in the latter indicated good governance.…”

“…The Malaysian Islamic banks showed better risk disclosures than the foreign Islamic banks (Kabir et al, 2019;Chong et al, 2019). Kabir et al (2019) found that the reports by the Malaysian Islamic banks were better than those reported in Bangladesh as the risk information in the latter indicated good governance. Unfortunately, they were also described with 'window dressing', a term that denotes general, standardised and not updated annual reports with the absence of actual instances of risks as well as the mitigation strategies.…”

“…As shown in Table 2, this step appears only in the first three years of corpus data. It was found that throughout the years, the same wordings were used to indicate the step (see Example 1.1) which signals the practice of 'window dressing' (Kabir et al, 2019). The example depicts the significance of risks and how good risk management practice helps in dealing with the risk.…”

Market Risk Disclosure: A Study on Systemic Banks in Indonesia

“…The topic of risk disclosure then became a topic of scrutiny among researchers. They conducted their studies on companies both in developed and developing countries, for example in the UK and Canada (Linsley et al, 2006;Linsley & Shrives, 2005) Saudi Arabia (Ahmad et al, 2017;Al-Maghzom et al, 2016;Moumen et al, 2015) Indonesia (Aryani, 2017;Mukhibad et al, 2020) Pakistan (Ashfaq et al, 2016), Malaysia and Bangladesh (Kabir et al, 2019).…”