The impact of external governance and regulatory settings on the profitability of Islamic banks: Evidence from Arab markets

Abstract

This study specifically investigates the effects of external governance mechanisms and regulatory settings on the profitability of Islamic banks operating in the Arab markets from 2003 to 2017. The empirical results underscore that the external governance mechanism and its dimensions in particular the political stability, regulatory quality, rule of law, and control of corruption impact Islamic banks' profitability positively. However, the regulatory settings and its sub-indices particularly the extent of disclosure and ease of shareholder suits have the opposite effect. Likewise, the results of traditional determinants indicate that the profitability of Islamic banks is shaped by the bank-specific, industry-specific, and country and global-level determinants. Results are robust and consistent with alternative estimation procedures and also support for the negative and positive effect of voice and accountability external governance's dimension and inflation, respectively. The findings of this study have important policy implications for regulators, policymakers, and banks' managers.

Examining the Role of Stakeholder-Oriented Corporate Governance in Achieving Sustainable Development: Evidence from the SME CSR in the Context of China

“…Total risk is regarded as a significant factor influencing firm performance, which is measured by the standard deviation of daily stock return [108]. We did not choose country risk and political risk as control variables, as suggested by Athari [109] and Athari and Bahreini [110], due to the fact that none of the existing empirical CSR and firm performance research in China has included these risks as control variables [95,104,105,[111][112][113][114][115][116]. This evidently shows that these two types of risks barely impact the relationship between CSR engagement and firm performance among Chinese firms, although they are proven to have a significant influence on Ukrainian banks [109] and Islamic banks [110].…”

“…We did not choose country risk and political risk as control variables, as suggested by Athari [109] and Athari and Bahreini [110], due to the fact that none of the existing empirical CSR and firm performance research in China has included these risks as control variables [95,104,105,[111][112][113][114][115][116]. This evidently shows that these two types of risks barely impact the relationship between CSR engagement and firm performance among Chinese firms, although they are proven to have a significant influence on Ukrainian banks [109] and Islamic banks [110]. The asset-liability ratio is the total debts divided by the total assets, and is also considered to have a significant impact on CSR and firm performance [103].…”

Does investor protection affect corporate dividend policy? Evidence from Asian markets

“…Likewise, the findings of numerous studies suggested that the country-level factors, particularly investor protection and macroeconomic risk factors, affect dividend payouts (e.g., Alzahrani & Lasfer, 2012;Athari, 2021a;Athari et al, 2016;Jabbouri, 2016). This study includes similar factors by using the proxies of protecting minority investors from the World Bank Group 4 and country-risk composite index scores of the International Country Risk Guide (ICRG) 5 for measuring investor protection quality and country risk, respectively (e.g., Athari, 2021b;Athari & Bahreini, 2021;Athari et al, 2016Athari et al, , 2020Irani et al, 2021;Kondoz et al, 2021). Table 1 presents the variables' description and expected signs.…”

Why does Shariah governance framework important for Islamic banks?

“…Respondents (E#2; E#5) expressed that SG is important for an effective, efficient and profitable business. The prior authors also stated that if the regulators can ensure more comprehensive guidelines (risk, business, dividend and policy) for their business it would impact Islamic banks performance and profit (Athari and Bahreini, 2021;Yousef et al, 2021;Al-Hunnayan, 2020;Budagaga, 2020;Duqi et al, 2020). Moreover, the proper SG is imperative to attract and satisfy the customers, shareholders and depositors as well as to protect and fulfill the interest and expectations of shareholders and stakeholders.…”