Risk Management Function Research Articles

Risk Assessing The Risks: Deliberations On Risk Prioritization

One of the dilemmas facing the quality risk management function is with a series of completed risk assessments and a series of multiple outcomes that require addressing, in the context of limited resources. When faced with multiple risks, how are these to be prioritized?

Dynamic of Risk Management and Intermediate Functions of Commercial Banks: The Supply Side Evidence from Nigeria

This study investigated the relationship between risk management and financial intermediation of quoted commercial banks in Nigeria. Panel data were sourced from the Nigeria Stock Exchange for a period that spans 2009 to 2018. Financial intermediation was measured domestic credit of the commercial banks. Domestic credit was modelled as the function of Risk diversification, Basel compliance, risk transfer, credit securitization and risk retention and risk evaluation. Multiple regressions were formulated to ascertain the relationship between risk management and capital investment decision of commercial banks. Panel Unit root test was utilised to establish the stationarity of the data. Panel cointegration, and granger causality test analyse the data. The panel unit root test proved presence of unit root at first difference and concluded that the variables were integrated in the order of 1(I). The study found that, there is a significant relationship between risk management and domestic credit decision, of the quoted commercial banks. The panel cointegrations show the presence of long run relationship between the endogenous variables and the exogenous variables while the granger causality test found uni-directional causality among the variables. From the findings, the study concludes that risk management have significant relationship with domestic credit decisions of the commercial banks. The study recommends that to mitigate the riskiness of banking operations, more avenues for risk diversification should be explored. Although Basel compliance enhances domestic credit decision, its implementation should be done cautiously and in consideration of the intricacies and peculiarities of the Nigerian banking space, as it impinges on most domestic credit decisions.

Collateral management then and now

Post the 2007–2008 financial crisis, regulators have emphasised on increased capital requirements, resiliency and transparency. Financial firms globally are focusing on improving their collateral, liquidity and risk management functions. Firms are looking at innovative solutions to optimise the use of collateral in order to maxi mise liquidity, while realising the traditional goals of operational efficiency and counterparty default risk management. This has led to the convergence of collateral and liquidity. This paper discusses how, irrespective of approach, all participants will need to share common goals if they must be successful. These goals will share common themes of improved efficiency, risk management and liquidity.

Multi-Transformer: A New Neural Network-Based Architecture for Forecasting S&P Volatility

Events such as the Financial Crisis of 2007–2008 or the COVID-19 pandemic caused significant losses to banks and insurance entities. They also demonstrated the importance of using accurate equity risk models and having a risk management function able to implement effective hedging strategies. Stock volatility forecasts play a key role in the estimation of equity risk and, thus, in the management actions carried out by financial institutions. Therefore, this paper has the aim of proposing more accurate stock volatility models based on novel machine and deep learning techniques. This paper introduces a neural network-based architecture, called Multi-Transformer. Multi-Transformer is a variant of Transformer models, which have already been successfully applied in the field of natural language processing. Indeed, this paper also adapts traditional Transformer layers in order to be used in volatility forecasting models. The empirical results obtained in this paper suggest that the hybrid models based on Multi-Transformer and Transformer layers are more accurate and, hence, they lead to more appropriate risk measures than other autoregressive algorithms or hybrid models based on feed forward layers or long short term memory cells.

Potential relationship of internal control, internal audit and risk management in company – the case study of Vingroup in Vietnam

There is interaction and relationship among internal control activities, internal audit and risk management in the firm, we conduct this study to address these functions in a case study of Vingroup in real estate industry in Vietnam , esp. We would like to mention potential relationship between these activities in companies and in this specific case. Authors mainly use experience and advice from experts, together with quantitative methods (statistics, calculation formulas) and qualitative methods including synthesis, inductive and explanatory methods. Our study results show that. And because CPI, G has negative relation with ROE while Rf has positive relation with ROE, macro policies can help to control inflation and GDP growth not increasing much to be in favor of ROE of Vingroup and toward benefits for managing risk. Finally, through analysis and synthesis, we will give suggestions for better internal control mechanism, internal audit and risk management functions in companies as well as in a specific case of Vingroup.

Perception of the Risk Factors in Official Development Assistance (ODA) Construction Project Management: Focused on Comparison between Project Owner and Construction Manager in KOICA Grant Projects

This study identified the most critical empirical risk factors at three sequential phases in a preconstruction period and investigated different perceptions of those risk factors by project owners (Korea international cooperation agency officers, KOICA) and construction managers (CM). It was found that the most prioritized empirical risk factors were evenly distributed in the three phases of the preconstruction period. Furthermore, the bidding phase of the Official Development Assistance (ODA) construction project had more high-ranking factors than the other phases; therefore, risk management in this phase needs particular attention. This study demonstrated the different perceptions of some risk factors, which are statistically significant, by various practitioners from the project owner (KOICA) and CM, on five factors based on occurrence and severity through a nonparametric test. KOICA placed higher awareness than CM on the nine critical risk factors, which are mostly technical survey and cost estimation related factors except one, which is a procurement-related factor. This study will encourage professional practitioners in KOICA ODA construction project management to enhance their risk management function based on the most critical risk factors and ensure their efficient cooperation.

Price discovery and market efficiency of cardamom in India

PurposeTransparent and fair price discovery is essential to commodity market participants in the trade value chain for competitive benefit. The purpose of this paper is to investigate the price discovery of Indian cardamom at e-auction, spot and futures markets in addition to the existence of the day of the week effect at e-auction apart from exploring a novel price risk management framework.Design/methodology/approachThis study used Johansen co-integration, vector error correction model, Granger causality and regression with dummy variables to understand a day of the week effect in high-value agri-commodity of cardamom e-auction prices. These price data were based on authenticated sources of Spices Board India and Multi Commodity Exchange of India Ltd.FindingsThe statistical results indicate price discovery exists in the e-auction market and it leads to spot and futures prices. cardamom e-auction prices are negatively related to cardamom futures and positively related to spot prices. It also finds the non-existence of the day of the week effect in the high-value cardamom e-auction system in India. The study revealed that a cardamom e-auction is more active in price discovery than a cardamom futures contract.Research limitations/implicationsThese results shall facilitate policymakers to explore intervention of online forward market mechanism at the national level to ensure price discovery and market efficiency. However, the study did not explore reasons for the non-equilibrium of a cardamom futures contract with spot and e-auction market.Practical implicationsThe results of this study are useful in understanding the price discovery of cardamom e-auction and its role in the spot and futures market. Cardamom price discovery depends upon the e-auction system; any change of auction policy shall be binding on Indian cardamom prices. The introduction of an online forward market mechanism as described in the paper shall facilitate price risk management apart from improving the efficiency of price discovery.Originality/valueThis is the first study considering cardamom e-auction, spot and futures prices in the price discovery process in India. Statistical results of a day of the week effect clearly show no significant volatility of cardamom prices during the week. Besides, this study did not find the role of cardamom futures contracts intended to serve the economic function of price discovery and price risk management. Hence, suggests policy intervention for implementing an online Forward Market mechanism for Indian cardamom to ensure market efficiency and manage price risk.

ACCOUNTING COMPLIANCE: AN INSTITUTIONAL APPROACH TO ENSURE THE QUALITY OF ACCOUNTING INFORMATION OF THE ENTERPRISE

The subject of the study is theoretical, methodological and practical aspects of the formation, development and functioning of the accounting compliance system as an appropriate institution for ensuring the quality of enterprise accounting information. Methodology. The methodological basis of the study is general scientific and special methods of cognition. In the course of the study, the following methods were used: abstract-logical method was used for the cognition of the essence, approaches, clarification of the concept of “compliance”, “accounting compliance”; bibliographic method was used for the study and development of scientific works devoted to the definition of the essence of the term “compliance”; graphic method was used for the design of the described processes using logical block diagrams; system-structural analysis was used to improve the mechanism for the formation and implementation of the accounting compliance system as an institution for ensuring the quality of accounting information. The objective of the study is to consider the essence of the concept of “compliance”, “accounting compliance”, to establish and define the role of accounting compliance in ensuring the quality of accounting information, to substantiate methodological approaches and practical recommendations for its formation and implementation at the enterprise. Results. The study has established that the definition of “compliance” should include an institutional approach, i.e. “compliance” should be understood as an institution of the internal control and corporate ideology system, which, using a system of regulations and a set of control mechanisms, forms the company’s ability to comply with established norms, standards, rules and procedures; a means of propaganda aimed at promoting the requirements for compliance with internal regulatory documents and generally accepted social values of the enterprise; a set of measures aimed at identifying risks accompanying the activities of the enterprise and eliminating their adverse consequences. “Accounting Compliance” is an institution of the internal control and corporate ideology system of the enterprise, which with the help of a system of measures and a set of control mechanisms provides the ability to track, monitor, evaluate and comply with the requirements of regulatory documents, regulations, instructions in the accounting system. It must be necessarily aimed at identifying, reducing and eliminating the risks of distortion, misrepresentation and falsification of accounting information. It has been substantiated that the accounting compliance system, as an appropriate institution, should be formed in stages, based on a set of specially developed internal methods, rules and procedures. It has been proved that most of the actions of the compliance system are aimed at identifying, analysing and assessing risks in the accounting system, and a significant number of documents defining its normative content are closely related to the implementation of the risk management function. Practical implications. In order to ensure the identification of compliance risks in the company’s accounting system and determine their impact on the formation and quality of accounting information, the grouping of risks by type is presented. To implement the functions of accounting compliance, it was proposed to develop and approve a number of internal standards and regulations, which will guide the employees of the Compliance Department in their work. In order to ensure the quality of accounting information to users necessary for making effective management decisions, the organizational and economic mechanism of the accounting compliance system has been developed. Conclusion of the study. Thus, accounting compliance, as an institution for ensuring the quality of accounting information at an enterprise, should be focused on finding, identifying, assessing, analysing and taking measures to minimize compliance risks in the accounting system arising from non-compliance with established rules, standards and procedures for organization and maintenance of accounting. Substantiated methodological foundations and recommendations for the formation and implementation of accounting compliance will not only ensure the quality of accounting information, but also guarantee business purity, a high level of corporate culture. The latter will contribute to improving the efficiency of economic activities and sustainable development of the enterprise.

Prediction of Multi-Scalar Standardized Precipitation Index by Using Artificial Intelligence and Regression Models

Accurate monitoring and forecasting of drought are crucial. They play a vital role in the optimal functioning of irrigation systems, risk management, drought readiness, and alleviation. In this work, Artificial Intelligence (AI) models, comprising Multi-layer Perceptron Neural Network (MLPNN) and Co-Active Neuro-Fuzzy Inference System (CANFIS), and regression, model including Multiple Linear Regression (MLR), were investigated for multi-scalar Standardized Precipitation Index (SPI) prediction in the Garhwal region of Uttarakhand State, India. The SPI was computed on six different scales, i.e., 1-, 3-, 6-, 9-, 12-, and 24-month, by deploying monthly rainfall information of available years. The significant lags as inputs for the MLPNN, CANFIS, and MLR models were obtained by utilizing Partial Autocorrelation Function (PACF) with a significant level equal to 5% for SPI-1, SPI-3, SPI-6, SPI-9, SPI-12, and SPI-24. The predicted multi-scalar SPI values utilizing the MLPNN, CANFIS, and MLR models were compared with calculated SPI of multi-time scales through different performance evaluation indicators and visual interpretation. The appraisals of results indicated that CANFIS performance was more reliable for drought prediction at Dehradun (3-, 6-, 9-, and 12-month scales), Chamoli and Tehri Garhwal (1-, 3-, 6-, 9-, and 12-month scales), Haridwar and Pauri Garhwal (1-, 3-, 6-, and 9-month scales), Rudraprayag (1-, 3-, and 6-month scales), and Uttarkashi (3-month scale) stations. The MLPNN model was best at Dehradun (1- and 24- month scales), Tehri Garhwal and Chamoli (24-month scale), Haridwar (12- and 24-month scales), Pauri Garhwal (12-month scale), Rudraprayag (9-, 12-, and 24-month), and Uttarkashi (1- and 6-month scales) stations, while the MLR model was found to be optimal at Pauri Garhwal (24-month scale) and Uttarkashi (9-, 12-, and 24-month scales) stations. Furthermore, the modeling approach can foster a straightforward and trustworthy expert intelligent mechanism for projecting multi-scalar SPI and decision making for remedial arrangements to tackle meteorological drought at the stations under study.

Підходи до формування моделі для імплементації концептуальних документів у сфері оборони

The article considers legal and organizational approaches to the formation of a model for the implementation of conceptual documents in defense sphere, development of the Armed Forces of Ukraine and other components of defense forces in modern conditions, strengthening their capabilities, close to the principles and standards adopted in NATO armies.The aim of the article is to find relevant approaches for the formation of a modern model for the implementation of conceptual documents in defense sphere, taking into account the requirements of the existing security environment and experience, principles and standards adopted in the armies of NATO member states.The analysis of the sources outlined in the article shows that the success of the formation of this model in defense sphere largely depends on many indicators. Summarizing them and the available methodological approaches to solving this problem, experts substantiate two main management models. Both of them are mainly related to the function of risk management, their minimization. Given the methodology described by them, in the defense sector there is a need to develop or form a separate model, primarily for the implementation of current legislation, especially the conceptual regulations of strategic and defense planning. According to experts, there are more than six dozen of them. The main ones are given in the article.The article also examines certain approaches to the possible model of implementation of the Law of Ukraine “On National Security of Ukraine” related to the formation of a modern planning system in national security and defense sphere, development of the security and defense sector of Ukraine, development of long- and medium-term strategic and defense planning for the development of troops (forces) based on capabilities according to the DOTMLPFI methodology, which is widely used in the armies of NATO member states. A variant of such a model is offered.Here, the methodology of formation of the extremely relevant Defense Plan of Ukraine as a key component of the studied model, presented in the publications and based on the provisions of this law and other normative legal acts, is analyzed.On this basis, the article draws relevant conclusions and recommendations.

Ризики в системі обліку та фінансової звітності

The article is concerned with studying the risks that are formed in the accounting and financial reporting system, their grouping and characterization for effective management and improvement of enterprise performance. Risk management standards clearly indicate the responsibility of management in assessing risks, managing and reporting them. The transformation of user approaches and needs to complete and reliable information about the risks of enterprises, in particular to the preparation of integrated reporting, indicates that the process of improving both the management and the reporting systems is underway. Accounting simultaneously acts as a function of risk management through the creation of reserves and provisions, a means of displaying risks and decisions about them through disclosure of information in the reporting, and is also a source of risk formation. The literature highlights the latter aspect the least. On the basis of the carried out research, the following groups of risks arising in the accounting and reporting system are determined: risks in the field of application of international (or national) accounting and reporting standards; absence (inefficiency) of management accounting, tax planning, internal control, independent audit; risks of errors and fraud; risks of adverse changes in legislation. For each group, the enterprise will be able to choose the most effective response measures through distribution (by creating reserves, insurance, diversification, outsourcing, developing accounting policies and job descriptions) and reducing risks (through investing in staff education: trainings, seminars, courses and motivation, updating accounting software, compiling and reporting, substantiating professional judgment, improving the internal control system, regulating management accounting, integrated reporting, system solutions). Thus, in order to increase the efficiency of risk management, of practical value should be taking into account the risks of accounting and reporting systems, if we consider them as a source of risks, and not only as an instrument for administration or information disclosure.

Artificial Intelligence for Post-Covid Companies: an Empirical Analysis of Tech Committees in the EU and US

Far from being something remote and unfathomable, artificial intelligence (AI) should no longer be just a confined attribution to those who possess IT skills, nor be discussed only when it is feared that it could replace the functions carried out by human beings. AI is right now revealing itself as an essential tool in dealing with some of the intricacies that have emerged due to the current global health crisis. As AI’s potentialities clearly emerge, confidence in such a technology as a means not only for recovery but, more in general, for change strengthens at all levels, including that of the board of directors. The positive implications that AI can bring about in the transformations of companies can however only be exploited if the risks generated by its employment are addressed by the corporate governance systems of the companies themselves, and specifically tackled by the board of directors, directly or in one of its committees such as the tech committee.Our study aims at clarifying whether tech committees are currently the place where potentialities and risks of AI employment are faced. In order to do this, we consider North American and EU listed companies that have adopted a tech committee in the period 2000-2019 and the companies’ documents describing tech committees’ activities. On the selected samples, we carry out both quantitative and qualitative analysis to understand the features of tech committees, of their members and, in particular, to identify the functions that such committees perform in practice. Besides the differences between the two jurisdictions considered, the (definitely surprising) outcome is that tech committees have not dealt with AI (at least in the first twenty years of their lives) as hoped (and perhaps as even expected), but that they play a rather predominantly strategic and monitoring role, often flanked by risk management functions.

A Country Pandemic Risk Exposure Measurement Model.

PurposeThe purpose of this study is to develop a Pandemic Risk Exposure Measurement (PREM) model to determine the factors that affect a country’s prospective vulnerability to a pandemic risk exposure also considering the current COVID-19 pandemic.MethodsTo develop the model, drew up an inventory of possible factor variables that might expose a country’s vulnerability to a pandemic such as COVID-19. This model was based on the analysis of existing literature and consultations with some experts and associations. To support the inventory of selected possible factor variables, we have conducted a survey with participants sampled from people working in a risk management environment carrying out a risk management function. The data were subjected to statistical analysis, specifically exploratory factor analysis and Cronbach Alpha to determine and group these factor variables and determine their reliability, respectively. This enabled the development of the PREM model. To eliminate possible bias, hierarchical regression analysis was carried out to examine the effect of the “Level of Experienced Hazard of the Participant (LEH)” considering also the “Level of Expertise and Knowledge about Risk and Risk Management (LEK)”.ResultsExploratory factor analysis loaded best on four factors from 19 variables: Demographic Features, Country’s Activity Features, Economic Exposure and Societal Vulnerability (i.e. the PREM Model). This model explains 65.5% of the variance in the level of experienced hazard (LEH). Additionally, we determined that LEK explains only about 2% of the variance in LEH.ConclusionThe developed PREM model shows that monitoring of Demographic Features, Country’s Activity Features, Economic Exposure and Societal Vulnerability can help a country to identify the possible impact of pandemic risk exposure and develop policies, strategies, regulations, etc., to help a country strengthen its capacity to meet the economic, social and in turn healthcare demands due to pandemic hazards such as COVID-19.

The Enduring Legacy of the Dodd-Frank Act’s Derivatives Reforms

ABSTRACT Despite the shortcomings of the Dodd-Frank Act, this article argues that the two parts most relevant to derivatives—Titles VII and VIII—are likely to endure. Title VII, which covers the trading of derivatives, especially swaps, generally strikes the right balance between preserving the vibrancy of the US derivatives markets and mitigating risk to market participants and the US financial system. While Title VII’s consolidation of much of the credit risk management function in central counterparties (CCPs) itself poses a systemic risk, this article contends nonetheless that Title VII addresses this risk by giving the Commodity Futures Trading Commission (CFTC) the power to mitigate it through regulations that implement the ‘core principles’ applicable to CCPs. This oversight is complemented by Title VIII, which provides enhanced supervision of systemically important CCPs. The Dodd-Frank Act’s approach to derivatives will endure, it is argued, so long as policymakers understand the interrelationship between Titles VII and VIII. This article focuses on that relationship and closes with a brief discussion of some of the work the CFTC is undertaking to bring finality to the statutory framework created by Titles VII and VIII.

Risk Management Functions and Audit Report Lag among Listed Saudi Manufacturing Companies

This paper examines whether the combination of risk management and functions are associated with report lag. Audit report lag is considered an important aspect of the financial reporting. The financial reports are the main source of information for shareholders through which they make their decisions and it assists in reducing the information asymmetry. As the internal control mechanisms substitute the external ones, the internal board committees formed by the board of directors can reduce the work and, consequently, reduces the report lag. A key is the risk management committee. This paper examines whether the combination of risk management and functions are associated with report lag. We posit that a combination of such functions in one refereed as affects the report delay. Data were obtained from 198 manufacturing companies listed on the Saudi Stock Exchange (Tadawul) for the years 2016-2018. A pooled OLS regression analysis shows that a combination of risk management and functions in a stand-alone named audit committee is associated with longer report lag. The outcomes suggest companies should prioritize the establishment of standalone risk management with activities separated from those of committees. © The Author(s).

Farmers Perception towards Agri-clinical Services for Rubber Plantation Crop at Sepahijala District of Tripura

This study aims to access and evaluate the Farmers perception towards Agri-clinical services of the rubber crop. The study has taken readings on the basis of their awareness level towards clinical services, the perception regarding clinical services, the significance of issues during the application of clinical services and some suggestive opinions of farmers located at Sepahijala district of Tripura. Study has highlighted the level of awareness and knowledge among farmers for clinical services to be used for rubber plantation crop. The study has highlighted that the subsidies will increase more development in their purchasing capacity like equipment and tools and also it will lead to more participation in rubber farming. It has been categorically identified the core significance of clinical services among the key stakeholders of the plantation crop. Paper has made an attempt to find out the utilization of farm utility, schemes, proper handling of inputs and risk management functions of commodity.

Compliant in principle! and in practice? Internal audit at listed companies in the Netherlands: beyond compliance with the Dutch Corporate Governance Code

The revised Dutch Corporate Governance Code of 2016 (hereafter “the Code”) comprises provisions regarding the existence of an internal audit function. Following the comply or explain principle of the Code, Euronext Amsterdam listed companies with a registered office in the Netherlands either have established an internal audit function or have to explain why they did not. Our research shows that the number of listed companies with an internal audit function has since grown. In 2016 53% of Euronext Amsterdam listed companies with their registered office in the Netherlands have established an internal audit function; in 2018 this figure is 64%. More than half of these listed companies have an in-house independent internal audit function, whereas other companies have internal audit functions with different characteristics, such as a combined internal audit and risk management function or have outsourced the internal audit function. The majority of the companies without an internal audit function provide inadequate arguments for this absence. They thereby do not meet the standards as set forth in the Code. In most cases, the argument for not having an internal audit function is: “the organization is too small”. This is not a valid argument, as the Code specifically addresses this situation stating that in case the size of a company is not suited for an internal audit function, outsourcing may be an appropriate alternative. We conclude that management boards should give this topic better thought and give better insight in their judgement by explaining the arguments. We therefore advocate that the principle of “comply or explain” should be “comply and explain”. Such is the case in the South African corporate governance code (King IV). The effect will be that management boards mindfully have to elaborate on how they obtain independent assurance on the company’s governance, risk management and control systems.

Corporate banking—risk management, regulatory and reporting framework in India: a Blockchain application-based approach

There has been a substantial build-up of non-performing assets in the Indian banking sector. Despite multiple initiatives and regulatory changes, there is a need to revisit the reporting and regulatory frameworks and redefine the focus areas. Banks credit problem has often been explored under the lens of asymmetric information. Spreads are generally directly proportional to probability of default and an inverse function of collateral and security. However, in India, there is a noticeable gap in academic literature to suggest robust institutional reforms to address the twin curse of adverse selection and moral hazard. Regulatory frameworks, particularly with respect to risk management function of banks, also grapple with predicting forthcoming disruptions. As banks redesign their corporate customer experience on a digitalized scale, leveraging large-scale available data, there is a bigger challenge to the regulator to ensure risk regulations are effective and save costs as well. The authors suggest that if information asymmetry exists, the blockchain protocols may mitigate uncertainty. Though blockchain technology has been leveraged to increase effectiveness of certain corporate banking products, the originality of the paper lies in coming out with a detailed framework for the possible use of blockchain (a distributed ledger based technology) for credit decisions, timely generation of red-flags and tightening the regulatory framework. The paper also lists down suggestions to improve the enabling regulatory and reporting architecture using regulatory technology (RegTech) to support unification of data already available in the banking system. This will improve the quality of information available to the lenders and enable them to take more informed credit decisions (data-driven finance), while granting and monitoring loans. Ultimately, it will lead to an optimization of credit risk capital.

The Audit Committee Effectiveness: An Empirical Work on Turkish Financial Industry

The major aim of this empirical work is to examine Audit Committee Effectiveness (ACE) from the perspective of financial institutions listed at Borsa Istanbul (BIST) and regulated by Banking Regulation and Supervision Agency (BRSA). A questionnaire is designed by using the Likert Scale with the principle of measuring attitudes by asking the professionals working in the board of directors, audit committees, risk committees, risk management, compliance units, internal audit, and/or internal control functions of financial institutions in Turkey. This questionnaire is developed to analyze their response to a series of statements about the characteristics of Audit Committee Effectiveness (ACE). Structural Equation Model (SEM) approach is used for the survey data and policy recommendations are made depending on the empirical results. The research findings reveal that the characteristics of an effective audit committee are an essential instrument for the board of directors. The empirical findings challenge key public expectations of Audit Committees, including the notion of ‘management oversight and performance evaluation’. The study highlights the potential for corporate governance in financial institutions to consider the contribution of audit committee members within the context of promoting the best corporate governance practice.

Shari’a corporate governance disclosure of Malaysian IFIS

PurposeThis paper aims to examine the extent of the Shari’a corporate governance disclosure in the annual report of Islamic financial institutions (IFIs) in Malaysia to determine the significant differences in this disclosure between the local and foreign-owned IFIs, small and large size IFIs and IFIs belong to Islamic and conventional holding companies.Design/methodology/approachAll 16 IFIs in Malaysia were selected to analyse the extent of disclosure in their annual reports on issues related to Shari’a corporate governance. For this purpose, an index of Shari’a corporate governance disclosure for IFIs was created based on adapting Sulaiman et al. (2015). The index consists of 127 items classified into 14 dimensions. The scoring of the disclosed items is binary, where a score of “1” if disclosed and “0” if it was not disclosed in the annual report.FindingsThe result shows no significant differences in the Shari’a corporate governance disclosure between the local and foreign-owned IFIs, small and large size IFIs and IFIs belonging to Islamic and conventional holding companies. However, further examination shows that there was a significant difference in the disclosure of the risk management committee dimension between the large and small IFIs and investment account holders dimension between the conventional and Islamic holding companies.Research limitations/implicationsThe results provide new emerging evidence that deviates from many prior empirical research studies, which document the domination of Islamic-based IFIs in the corporate governance practices, as compared with their conventional financial institutions that venture into Islamic finance. This study, however, was conducted on only 16 IFIs in a one-year period, i.e. 2013. Future research should consider data from a larger number of IFIs that involve a number of countries with more than one year of data to have a better understanding of the extent of Shari’a corporate governance disclosure.Practical implicationsThis study provides an indicator to the stakeholders of Islamic finance that the Islamic-based IFIs and conventional IFIs are equal and cannot be differentiated based on the Shari’a corporate governance disclosure. For Islamic-based IFIs, as a pioneer in Islamic banking and finance industry, they need to take more efforts in adopting the Shari’a governance framework issued by the Central Bank of Malaysia (BNM), namely, the Shari’a review, audit and risk management.Originality/valueThis study is original, as it includes the latest requirements by the Shari’a governance framework issued by the BNM, namely, the Shari’a review, audit, risk management and research functions in its research instrument. In addition, this research also scrutinised the disclosure in detail of all the dimensions constructed in the governance index.