Abstract
The purpose of the study is to thoroughly outline how the hubris behavior of chief executive officers (CEO) is detrimental to Islamic banks’ (IBs) performance. Specifically, this study attempts to examine the role of the Sharia supervisory board (SSB), board vigilance, and CEO power in the relationship between CEO hubris behavior and decreased IBs’ performance. This study observes IBs’ performance during the period from 2014 to 2020 and develops eight models to test their determinants. Empirical testing of all models shows that CEO hubris has a detrimental impact on IBs’ performance. The moderating impact test shows the following results: firstly, the presence of SSB, which is represented by the reputation of its members, reduces the detrimental impact of hubris behavior by CEOs on IBs’ performance, while that impact, which is represented by member expertise, does not have a moderating effect. Second, the size and independence of the BOC both weaken the negative relationship between CEO hubris and IBs’ performance. Third, CEO power as represented by tenure and ownership has no moderating effect.
Highlights
Asad and Sadler-Smith (2020), Petit and Bollaert (2012), and Jiang et al (2011) studied business, management, and finance issues and documented that the hubris behavior carried out by chief executive officers (CEO) has an unfavorable impact and the failure of the company’s business management
The moderating impact test shows the following results: firstly, the presence of supervisory board (SSB), which is represented by the reputation of its members, reduces the detrimental impact of hubris behavior by CEOs on Islamic banks’ (IBs)’ performance, while that impact, which is represented by member expertise, does not have a moderating effect
This study investigates the moderating impact of SSB, board vigilance, and CEO power on the relationship between CEO hubris and IBs’ performance
Summary
Asad and Sadler-Smith (2020), Petit and Bollaert (2012), and Jiang et al (2011) studied business, management, and finance issues and documented that the hubris behavior carried out by CEOs has an unfavorable impact and the failure of the company’s business management. IBs spread across 12 countries for the period Several previous studies have demonstrated that from 2011 to 2018 and failed to find empirical CEO power plays a role in moderating the relaevidence that SSB competence as measured by tionship between the CEO’s hubris behavior and expertise and reputation affects company per- firm performance associated with its antecedent formance. Brahmana et al (2021) explain that the (2017) investigated SSB competencies in 82 IBs moderating impact of CEO power occurs when spread across 15 countries and concluded differ- it interacts with antecedent firm performance, ent results: the expertise and reputation of SSB namely the retrenchment strategy. This study is focused on the moderating impact by higher financial performance This relationship of SSB on the relationship between CEO hubris is getting stronger with CEO power (Velte, 2020). SSB, board vigilance, and CEO power further strengthens or weakens the relationship between CEO hubris behavior and decreased performance
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