Risk-adjusted efficiency and corporate governance: Evidence from Islamic and conventional banks
By Muhammad Safiullah, Abul Shamsuddin. Journal of Corporate Finance, 2019
119 citations recorded by the source corpus.
Abstract Previous studies have compared the efficiency of Islamic banks with their conventional counterparts using a common efficiency frontier and ignoring risks, in spite of the two bank groups operating under different technological, market and institutional conditions. We overcome this issue by estimating efficiency using the stochastic meta-frontier model for a large international sample, and show that compared to conventional banks, Islamic banks are 4 percentage points more cost efficient, but 17 percentage points less profit efficient on a risk-adjusted basis. For both bank types, higher bank risk reduces cost efficiency but increases profit efficiency, implying that risks contribute more to generating revenues than inflating costs. Having a stronger Shariah supervisory board is conducive to improving Islamic banks' profit efficiency. Our findings are robust to accounting for potential endogeneity in the governance-efficiency relationship.
Subfields: Accounting, Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/2a1509dc5d36d4b24fd083c0839334cbf4d23e5a
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Citations in the corpus
- Global banking stability in the shadow of Covid-19 outbreak (2021, background): “Financial institutions are likely to be vulnerable to shocks in terms of both the international and domestic economic systems (Fu et al., 2014; Montgomery, Harimaya and Takahashi, 2014; Wang, Xie, Zhao and Jiang, 2018; Safiullah and Shamsuddin, 2019; Kwabi et al., 2020).”