BOARD DIVERSITY AND FINANCIAL PERFORMANCE OF ISLAMIC BANKS IN MALAYSIA

Abstract

Corporate governance of Islamic Banks (IBs) presents entirely unique and different complexities compared to conventional counterparts. Despite these complexities and some reported cases of financial scandals involving the IBs, studies of the corporate governance of the IBs are still lacking. This paper examines the board aspect of Islamic banks. The study specifically examined the impact of board diversity and financial performance IBs in Malaysia. The sample of the study comprised of the 16 IBs operating in Malaysia over six (6) years from 2015 to 2020. Data was analysed with regression method of data analysis. The study also utilises t-test and perform robustness test for the predictor variables. The overall finding revealed that, diversity in the board of the IBs induces better financial performance. Additionally, the research also found gender diversity and board directorships attributes of the board’s positive and significantly linked with the financial performance of the IBs. Considering the result of the study we argue that more diverse board could not only guarantee proper monitoring and resource provision, but could also improve the independence of the board in its role as the trustee of shareholders, especially in complex institutions like IBs. By having a well inclusive board, IBs will benefit equally from valuable abilities across demographic, ethnic and religious groups in the society. Furthermore, by ensuring very well inclusive boards, IBs can effectively contribute to enhancing social welfare of various segments in the society. This is the first study best known to the authors that provides empirical evidence on the influence of gender diversity, board national, board duality and board skills and expertise among board on the financial performance of IBs. This paper could be referred to by the shareholders and other stakeholders.