Momentum investment strategies, corporate governance and firm performance: an analysis of Islamic banks

Abstract

PurposeThe purpose of this paper is to empirically examine the effect of investments in organisational resources and corporate governance features on market-based performance of Islamic banks (IBs).Design/methodology/approachThe required data to calculate different constituents of banks’ investment strategies and governance mechanism were hand collected from 268 annual reports. Different regression models were used to determine the impact of investment in human and structural capital and corporate governance features on market performance of IBs.FindingsThe paper finds that investments in knowledge resources (human capital, in particular) have a significantly positive impact on the market value of IBs. The results further reveal that IBs’ strategy to rely on long-term human capital accumulation can be seen as idiosyncratic problem-solving knowledge capital. Based on market measure, the paper finds role duality to have a significant positive impact and the size of the advisory board to have the opposite effect on market value.Research limitations/implicationsThis study includes IBs only and ignores other Islamic financial services providers such as Takaful (insurance) companies. The study leaves this chasm to be filled by future researchers.Practical implicationsThe findings may serve as a useful input for both Islamic bankers and regulators to apply knowledge management in their institutions. Furthermore, the dominant role of human capital also provides insight to managers with respect to business performance levers.Originality/valueThe main contribution of this paper is to provide insight into the Islamic banking business model using a unique hand-collected data set, to identify the effect of investments in organisational resources and bank governance on market value in before, during and after financial crisis.