Women in the Boardroom and Financial Soundness-Study at Islamic Banks in Southeast Asia

Abstract

The study of gender diversity of Islamic bank boards (Board of Directors-BOD and Shariah Supervisory Board-SSB) is still limited. The aim of this study is to empirically prove the effect of gender diversity on the board (BOD and SSB) on financial soundness. We use unbalanced panel data on 38 Islamic banks in 5 countries in Southeast Asia with an observation period of 2010-2019. Using Random-effects GLS regression, we found that BOD and SSB gender diversity did not affect financial soundness. However, we found that women in SSB members strengthened the positive effect of BOD gender diversity on financial soundness. The corporate governance structure of Islamic banks, BOD and SSB are jointly involved in making bank business decisions. SSB as a multi-layer governance and completes the duties of BOD as supervisor and advisor in bank operations. The presence of women as SSB members strengthens the relationship between BOD gender diversity and financial soundness. Our results are robust after performing the 2SLS test to address the possible endogeneity problem.