Corporate Governance, Shariah Governance, and Credit Rating: A Cross-Country Analysis from Asian Islamic Banks

Abstract

This study aimed to investigate the association between corporate governance characteristics, shariah governance characteristics, and the credit rating of Asian Islamic banks. To do so, we collected data from 22 banks during the 2006–2018 period. In total, we observed 286 data points. Credit rating was measured through an adaption of the credit rating scale that measured the long term credit of Islamic banks on an ordinal scale. From these data, 19 scores (Aaa) were considered high credit ratings and 1 score (C) was considered a low credit rating. Descriptive statistics, correlations, and the ordered logit regression model were applied in a panel setting. We found that the board interlock, board independence, CEO duality, and board foreign directorship negatively affected credit ratings. We also found that the board size, board accounting, finance knowledge, presence of women on the board, shariah board size, presence of supervisory shariah board, the shariah board interlock, and presence of female shariah scholars all were positively associated with credit ratings. This study suggests that Islamic banks can access more funds with higher shariah compliance. As such, we concluded that evaluating organizations’ credit ratings must consider shariah governance attributes as determinants of the credit rating of Islamic banks.

Shariah Compliance in Islamic Economics: A Bibliometric Analysis

“…Shariah compliance is a theoretical framework used to evaluate the commitment of the Islamic finance industry to shariah values. It is also the foundation for the profit and loss sharing model implemented in Islamic banks (Mansoor et al, 2020). This shows that it has an essential position in the finance industry.…”

“…First is shariah compliance in Islamic banks. A set of studies classified in this first group generally examined three main issues, namely (1) it is used as a framework for understanding consumer attitudes and behaviour towards Islamic banks, (2) shariah compliance impact on the banks, and (3) measurement of the Islamic banks' commitment in operationalising the paradigm (Ahmed & Farooq, 2018;Johan et al, 2020;Julia et al, 2016;Mansoor et al, 2020;Rosly et al, 2017;Trakic, 2020). Second is shariah compliance in the non-bank financial industry.…”

Corporate governance in the Middle East and North Africa: A systematic review of current trends and opportunities for future research

“…SSBs along with audit committees improve the performance of Islamic banks (Aslam & Haron, 2020). The presence of an SSB along with the incorporation of female Sharia scholars, as well as other factors, improve the credit ratings of Islamic banks (Mansoor et al, 2020).…”

Corporate social responsibility and firm performance: The moderation of investment horizon and corporate governance

“…Scholars in the different part of the word explored this issue with the help of different proxies of corporate governance such as corporate board size, board independence, CEO-duality, audit quality etc. (Majeed et al, 2015;Mansoor et al, 2020). However, there is rare work available, which addresses this issue by composing all the proxies of corporate governance in the form an index and exploring its impact on firm's performance mechanism along with the CSR.…”