THE IMPACT OF CORPORATE GOVERNANCE ON BANK RISK-TAKING: EVIDENCE OF ISLAMIC BANKS IN GULF COOPERATION COUNCIL (GCC) COUNTRIES

Purpose — This study investigates the impact of Islamic corporate governance variables on risk-taking within a sample of 31 Islamic banks (IBs) operating in six countries in the Arab Gulf region during the period 2013–2022.

Design/Methodology/Approach — The study utilises content analysis and employs two econometric models: the random-effect generalised least squares (GLS) technique and the generalised method of moments (GMM) approach.

Findings — The findings reveal that two characteristics of Sharīʿah supervisory boards (SSBs), namely cross membership and knowledge in accounting and finance, have a negative impact on bank risk. However, it is observed that SSB size demonstrates a positive correlation with bank risk-taking, indicating that SSBs face challenges in effectively performing their supervisory role. Furthermore, it is noted that during the pandemic period, banks demonstrated significantly higher levels of credit risk and global risk.

Originality/Value — This research provides a valuable addition to the existing literature by conducting the inaugural analysis of the relationship between SSBs and bank risk-taking in the Arab Gulf region, adding to the understanding of Islamic corporate governance dynamics.

Research Implications — The study suggests reinforcing the structure of SSBs in IBs in the Gulf Cooperation Council (GCC) countries by appointing members with educational backgrounds in business, accounting, and finance. Furthermore, it supports the idea that the presence of shared scholars in IBs facilitates rational decision-making by SSBs and contributes to reduced risk-taking