A canary in a Coalmine! Religious agency and its impact on the performance of Islamic banks

Virk, Nader Shahzad, Nawaz, Tasawar and Molyneux, Philip (2022) A canary in a Coalmine! Religious agency and its impact on the performance of Islamic banks. Journal of International Financial Markets, Institutions and Money, 78. 101559. ISSN 1042-4431

Preview

Published Version Available under License Creative Commons Attribution. Download (506kB) | Preview

Abstract

We examine the impact of religious agency on the performance of GCC Islamic banks. Our results show that a high proportion of prominent religious scholars on Shariah supervisory boards (SSB) improves financial performance. However, when a prominent Shariah scholar chairs the SSB there are negative performance effects. With the high concentration of a few Shariah scholars, our findings have twofold implications: first, future research should develop approaches to test Shariah governance effectiveness in relation to the assigned mandate of SSBs; second, there is a need for revisiting Shariah compliance mechanisms to mitigate the embeddedness of Shariah scholars and their influence on Islamic bank performance.