The influence of corporate governance on intellectual capital efficiency: evidence from Islamic banks of OIC countries

Abstract

PurposeThe purpose of this study is to examine the impact of corporate governance (CG) on intellectual capital efficiency (ICE) in Islamic banks (IBs) of Organisation of Islamic Cooperation (OIC) countries.Design/methodology/approachA sample of 129 IBs is drawn from the 29 OIC countries from 2008 to 2017. A two-step system of the generalised method of moments has been employed to account for the unobserved endogeneity and heteroscedasticity issue that arose due to time-variant and time-invariant variables.FindingsThe results revealed that CG measures, namely board size, non-executive directors do explain the extent and quality of ICE in the expected direction. In contrast, CEO duality, Shariah board and audit committee are negatively associated with the ICE. Moreover, the authors observed that male CEO in IBs has negative, but foreign ownership has a positive association with ICE in determining the extent of ICE in IBs. This study contributes specifically to the stakeholder theory and the literature of ICE and CG.Research limitations/implicationsThe findings of the study provide insight into how a larger board can overcome skill deficiency and how making more investment in ICE would help to enhance productivity. Hence, bank managers, regulators, policymakers and shareholders have strong interest in designing the appropriate CG structure to develop ICE in banks.Originality/valueThis is one of the few studies which provide empirical evidence of CG mechanism to boost the ICE in the perspective of IBs of the OIC countries.

Does Corporate Governance Matter for Asset Quality of Islamic Banks?

“…For each regression, the diagnostic test satisfies the condition that instruments are uncorrelated and that the error terms are different across models. In addition, the AR ( 1) and ( 2) test results show absence of autocorrelation problems across models, as suggested by the literature (Nomran and Haron, 2020;Aslam and Haron, 2020b). The lag values of LAS, LTD, and NPLR are positive and statistically significant in all models, indicating that the past year's LAS, LTD, and NPLR values significantly enhance the current year's LAS, LTD, and NPLR values of Islamic banks.…”

“…A high proportion of outside directors could, thus, weaken the performance of the advisory tasks in the organization (Aslam, and Haron, 2020b). Tarchouna et al (2017) additionally found a noteworthy negative connection between board independence and non-performing loans.…”

“…Therefore, our discussion primarily explores the following factors. Aslam and Haron (2020b) explained that the board size (executives) of an organization forms the board's structure. Prior studies discussed the right and optimal board size in an organization, but this remains elusive.…”

“…Their outcomes are consistent with those of Japanese insider-ruled corporate administration highlights. Thus, the study of Aslam and Haron (2020b) found that board independence is primarily related to banking industry using data from several OECD countries. This study hypothesises that the Islamic financial industry utilises board independence effectively.…”

“…Corporate scandals have an impact on both the investor's certainty and economic recessions, and hence highlight the utmost significance of corporate governance across firms (Nomran and Haron, 2020) and the banking sector. A delicate corporate governance system and extreme risk-taking exposures enhance the banking sector unsteadiness and economic losses; this reinforces the need for effective corporate governance practices in the banking sector (Aslam and Haron, 2020b). Rehman et al (2020) discussed that a board demanding a good governance structure could send a positive signal to the market as well as provide good advice to management, which could significantly contribute to sustainable banking performance through strategic decision-making leads.…”