Corporate Governance, Firm Performance, and Risk Disclosure of Islamic Banks During Global Financial Crisis: Matched Pair-Sample Analysis

Abstract

The global banking system virtually came to a halt during the financial crisis, but the Islamic Banks were not exposed, and none of them did announce massive write-offs and needed government capitalization (Desai, 2008, and Brewster, 2008). Chapra (2009), in this regard, has documented that resiliency of the Islamic Banks was tremendous during the crisis. The purpose of this study is to test whether value and morality driven board can prevent Islamic banks from excessive risk taking and hence, protect them against financial fragility during global crisis. By using a matched pair sample of 172 Islamic and non-Islamic Banks from 25 countries over the period of 2007-2010 and a survey on the Shari’ah board members, we have come to the conclusion that the board structure played roles in restricting Islamic banks from aggressive risk-taking and hence, protected the banks against financial fragility during the crisis. The Shari’ah boards, however, do not have any monitoring ability other than conducting Shari’ah audits and validating the banking products and services.