Corporate Governance and Islamic Behavioural Finance: A Review from Malaysia and GCC Countries

Abstract

This study examines the mediating effect of investors’ sentiment on the relationship between corporate governance (CG) and herding and risk-averse behaviour in the Shariah-compliant stocks in Malaysia and Gulf Cooperation Council (GCC) countries. Panel data and quantile regressions are adopted, and the research timeframe is 2017 to 2021. The result shows that remuneration. Audit Committee, risk management and internal control and engagement with stakeholders significantly and positively correlate to Malaysia, Kuwait, Oman, Qatar, Saudi and the UAE stock returns. Board responsibility is the only variable significant in Malaysia, Saudi and the UAE. The result implies a full mediation as the CG has caused the changes in investors’ sentiment and subsequently triggered the investors to herd and become risk-averse. The impact of CG is more pronounced in the upper and lower quantiles of the returns of Malaysia, Saudi and the UAE, as well as the median quantile of Bahrain, Kuwait, Oman and Qatar. The result of this study contributes to policymakers, regulators and practitioners in identifying the best CG practices that assist the Shariah-compliant stocks in Malaysia and GCC countries to gain a better stock return, investors’ sentiment and behaviour. The results assist the governments in the impact and benefits of adopting CG in different Islamic countries.