Bank governance and crisis-period efficiency: A multinational study on Islamic and conventional banks

Abstract

This study examines the effect of Islamic banks' dual board governance mechanisms (Shariah supervisory board and regular board of directors) on technical efficiency; and whether the effect of such governance mechanisms varies between normal times and global financial crisis period. The results show that Shariah supervisory board contributes to reducing an Islamic bank's technical inefficiency. During the GFC, both SSB governance and regular board governance generate an incremental efficiency gain to Islamic banks, but the effect is more pronounced for SSB governance. The key findings on the governance-inefficiency relationship are robust to controlling for potential endogeneity of corporate governance.