The impact of Shariah Advisory Board characteristics on the financial performance of Islamic banks

Abstract

Theoretical approaches and demonstrated repertoires in the Islamic finance literature have formed a divergent and inconsistent system that did not truly value the importance of the Shariah Advisory Board’s quality and practices. The real impacts generated by the Shariah Advisory Board on the Islamic banks’ financial performance have not yet been thoroughly investigated in detail. While these impacts need the development of a metrological, dynamic, and methodological investigation, we delved into the specific effect of Shariah Advisory Board on the Islamic banks’ financial performance in all continents. To explore the relationship between the selected variables through the application of the fixed and random effects method, we used 180 Islamic banks from 56 countries during the period (2010–2019). The empirical results revealed that the Shariah Advisory Board size, the number of meetings and the presence of Shariah advisers improved the Islamic banks’ financial performance of Islamic banks. However, the presence of financial or accounting experts in the Shariah Advisory Board deteriorated their financial performance. Because the real impacts generated by the Shariah Advisory Board on the Islamic banks’ financial performance are not yet investigated in detail, we analyzed not only the practical symptoms of the Shariah Advisory Board’s effects on the Islamic banks’ financial performance, but also, we tried to solve the ambiguity, and we provide the first detailed analysis that concentrated on the impacts of the determinants’ quality of the Shariah Advisory Board on the Islamic banks’ financial performance.