Bank Performance and Shari’ah Supervisory Board Attributes on Islamic banks: Does Bank Size Matter?

  • Naji Mansour Nomran Thamar University Yemen
  • Razali Haron IIUM Institute of Islamic Banking and Finance,(IIiBF), International Islamic University Malaysia
  • Rusni Hassan IIUM Institute of Islamic Banking and Finance,(IIiBF), International Islamic University Malaysia


This study aims to provide new empirical evidence on whether the impact of Shari’ah Supervisory Board (SSB) characteristics on Islamic Banks (IBs) performance can be affected by the size of the bank by using a sample of 25 banks for the period from 2007 to 2015. Six SSB characteristics were employed as explanatory variables which are (size, cross-membership, educational qualification, reputation, experience and change in the composition). By employing random-effects GLS and GMM method for a robustness check, it is found that four SSB characteristics (size, cross-membership, educational qualification and change in the composition) significantly affect the performance of IBs when the full sample is examined. However, the findings vary when the sample is divided into two subsamples, large and small bank. Four SSB characteristics (size, cross-membership, reputation and experience) are found to play an important role in enhancing the performance of large IBs while only (reputation and experience) significantly affect the performance of small IBs. This confirms that the impact of SSB characteristics on performance concentrates more on large IBs as compared to the small banks. Thus, there is a lack of Shari’ah governance practices in the small IBs in Malaysia and Indonesia as compared to the large banks.


Abdullah, H., & Valentine, B. (2009). Fundamental and ethics theories of corporate governance. Middle Eastern Finance and Economics, 4(4), 88-96.
Abdullah, W. A. W., Badak, K. G., & Stewart, J. (2014). Corporate Governance Disclosure Practices of Islamic banks: the Case of Islamic banks in the Southeast Asian and the Gulf Cooperation Council region. JIAR 2014.
Alman, M. (2012). Shari’ah Supervisory Board Composition Effects on Islamic Banks’ Risk-Taking Behavior. Journal of Banking Regulation, 14, 134-163.
Al-Matari, E. M., Al-Swidi, A. K., & Faudziah, H. B. F. (2014). The Effect of the Relationship between Board of Directors Characteristics on Firm Performance in Oman: Empirical Study. Middle-East Journal of Scientific Research, 21(3), 556-574.
Azim, M. I., Taylor, D. W. (2009), “Board monitoring and firm performance: controlling for endogeneity and multicollinearity”, Corporate Ownership and Control, 6(3), 79-93.
Bakar, M. D. (2016). Shariah Minds in Islamic Finance. Amanie Media: Kuala Lumpur.
Arye Bebchuk, L., & Fried, J. M. (2003). Executive compensation as an agency problem. The Journal of Economic Perspectives, 17(3), 71-92.
Bhatti, M., & Bhatti, M. I. (2010). Toward understanding Islamic corporate governance issues in Islamic finance. Asian Politics & Policy, 2(1), 25-38.
Brick, I. E., Palmon, O., & Wald, J. K. (2006). CEO compensation, director compensation, and firm performance: Evidence of cronyism?. Journal of Corporate Finance, 12(3), 403-423.
Bukair, A. A., & Abdul Rahman, A. (2015). Bank performance and board of directors attributes by Islamic banks. International Journal of Islamic and Middle Eastern Finance and Management, 8(3), 291-309.
Cheng, L. T., Chan, R. Y., & Leung, T. Y. (2010). Management demography and corporate performance: Evidence from China. International Business Review, 19(3), 261-275.
Clarysse, B., Knockaert, M., & Lockett, A. (2007). Outside board members in high tech start-ups. Small Business Economics, 29(3), 243-259.
Duffhues, P., & Kabir, R. (2008). Is the pay–performance relationship always positive?: Evidence from the Netherlands. Journal of Multinational Financial Management, 18(1), 45-60.
Eisenberg, T., Sundgren, S., & Wells, M. T. (1998). Larger board size and decreasing firm value in small firms. Journal of Financial Economics, 48(1), 35-54.
Farook, S. & Lanis, R. (2007). Banking on Islam? Determinants of corporate social responsibility disclosure, in Advances in Islamic Economics and Finance: Proceedings of 6th International Conference on Islamic Economics and Finance, Jeddah, 2007, Vol. 1, 217-247.
Farook, S., Hassan, K., & Lanis, R. (2011). Determinants of corporate social responsibility disclosure: The case of Islamic banks. Journal of Islamic Accounting and Business Research, 2(2), 114 – 141.
Ferrero-Ferrero, I., Fernández-Izquierdo, M. Á., & Muñoz-Torres, M. J. (2012). The Impact of the Board of Directors’ Characteristics on Corporate Performance and Risk-taking Before and During the Global Financial Crisis. Review of Managerial Science, 6(3), 207-226.
Fox, A., & Opong, K. (1999). The impact of board changes on shareholder wealth: some UK evidence. Corporate Governance: An International Review, 7(4), 385-396.
Gabrielsson, J., & Huse, M. (2005). Outside directors in SME boards: a call for theoretical reflections. Corporate Board: role, duties and composition, 1(1), 28-37.
Ginena, K. & Hamid, A. (2015) The Sharī‘ah Supervisory board, in Foundations of Sharī‘ah Governance of Islamic Banks, John Wiley & Sons, Ltd, Chichester, UK. doi: 10.1002/9781119053507.ch5.
Grais, W., & Pellegrini, M. (2006). Corporate governance and Shariʿah compliance in institutions offering Islamic financial services. World Bank Policy Working Paper: 4054, 1−34.
Grassa, R. (2013a). Shariʿah Governance System in Islamic Financial Institutions: New Issues and Challenges. Arab Law Quarterly, 27(2), 171-187.
Grassa, R. (2013b). Shari’ah supervisory system in Islamic financial institutions: New issues and challenges: a comparative analysis between Southeast Asia models and GCC models. Humanomics, 29(4), 333-348.
Grassa, R. (2015a). Corporate governance and credit rating in Islamic banks: Does Shariah governance matters? Journal of Management & Governance, 1-32.
Grassa, R. (2015b). Shari’ah supervisory systems in Islamic finance institutions across the OIC member countries: An investigation of regulatory frameworks. Journal of Financial Regulation and Compliance, 23(2), 135-160.
Gujarati, D & Porter, D. (2009).”Basic Econometrics”. McGraw-Hill: New York.
Hair, J. F., Black, W. C., Babin, B. J., & Anderson, R. E. (2010). Multivariate Data Analysis. Prentice Hall/Pearson.
Hambrick, D. C., & Mason, P. A. (1984). Upper echelons: The organization as a reflection of its top managers. Academy of management review, 9(2), 193-206.
Hamza, H. (2013). Sharia governance in Islamic banks: effectiveness and supervision model. International Journal of Islamic and Middle Eastern Finance and Management, 6(3), 226-237.
Hamza, H. (2016). Does investment deposit return in Islamic banks reflect PLS principle? Borsa Istanbul Review, 16(1), 32-42.
Haniffa, R. M., & Cooke, T. E. (2002). Culture, corporate governance and disclosure in Malaysian corporations. Abacus, 38(3), 317-349.
Haniffa, R., abd Hudaib, M. (2006). Corporate governance structure and performance of Malaysian listed companies. Journal of Business Finance & Accounting, 33(7‐8), 1034-1062.
Haron, R. (2016). Do Indonesian firms practice target capital structure? A dynamic approach. Journal of Asia Business Studies, 10(3), 318-334.
Haron, R., and Adewale, A.A. (2016). Islamic capital market and debt financing of Shariah compliant firms in Indonesia. Al-Shajarah (Special Issue in Islamic Banking and Finance), 67-86.
Haron, R. (2017). Ownership structure of family-owned firms and debt financing. Evidence on Shari’ah compliant firms in Malaysia. Al-Shajarah (Special Issue in Islamic Banking and Finance), 139-163.
Hassan, R and Triyanta, A and Yusoff, A. (2011). Shariah compliance process in Malaysian Islamic banking. Malayan Law Journal, 5. lxxx-xcvii. ISSN 0025-1283.
Hillman, A. J., & Dalziel, T. (2003). Boards of directors and firm performance: Integrating agency and resource dependence perspectives. Academy of Management review, 28(3), 383-396.
Ingley, C. B., & Van der Walt, N. T. (2001). The strategic board: The changing role of directors in developing and maintaining corporate capability. Corporate Governance: An International Review, 9(3), 174-185.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305-360.
Jensen, M. C. (1993). The modern industrial revolution, exit, and the failure of internal control systems. The Journal of Finance, 48(3), 831-880.
Johnson, J. L., Daily, C. M., & Ellstrand, A. E. (1996). Boards of directors: A review and research agenda. Journal of Management, 22(3), 409-438.
Kakabadse, N. K., Yang, H., & Sanders, R. (2010). The effectiveness of non-executive directors in Chinese state-owned enterprises. Management Decision, 48(7), 1063-1079.
Kline, R.B. (1998), Principles and Practice of Structural Equation Modeling. Guilford: New York.
Laeven, L., & Levine, R. (2009). Bank governance, regulation and risk taking. Journal of Financial Economics, 93(2), 259-275.
Matoussi, H., & Grassa, R. (2012). Is Corporate Governance Different For Islamic Banks? A Comparative Analysis between the Gulf Cooperation Council Context and the Southeast Asia Context, in The Economic Research Forum, 734, 2-28.
Mollah, S., & Zaman, M. (2015). Shari’ah Supervision, Corporate Governance and Performance: Conventional vs. Islamic Banks. Journal of Banking and Finance, 419-430.
Mollah, S., Hassan, M. K., Al Farooque, O., & Mobarek, A. (2016). The governance, risk-taking, and performance of Islamic banks. Journal of Financial Services Research, 1-25.
Musibah, A. S., & Alfattani, W. S. B. W. Y. (2014). The Mediating Effect of Financial Performance on the Relationship between Shariah Supervisory Board Effectiveness, Intellectual Capital and Corporate Social Responsibility, of Islamic Banks in Gulf Cooperation Council Countries. Asian Social Science, 10(17), 139-164.
Naceur, S. B. (2003). The determinants of the Tunisian banking industry profitability: Panel evidence. Universite Libre de Tunis working papers.
Nomran, M. N., Haron, R., & Hassan, R. (2018). Shari’ah Supervisory Board Characteristics Effects On Islamic Banks’ Performance: Evidence from Malaysia. International Journal of Bank Marketing, 36(2), forthcoming.
Nathan Garas, S. (2012). The conflicts of interest inside the Shari'a supervisory board. International Journal of Islamic and Middle Eastern Finance and Management, 5(2), 88-105.
Nathan, S. (2010). The Performance of Shari'ah Supervisory Boards Within Islamic Financial Institutions in the Gulf Cooperation Council Countries. Corporate Ownership & Control, 247.
Pathan, S., & Faff, R. (2013). Does board structure in banks really affect their performance? Journal of Banking & Finance, 37(5), 1573-1589.
Pathan, S. (2009). Strong boards, CEO power and bank risk-taking. Journal of Banking & Finance, 33(7), 1340-1350.
Pfeffer, J., & Salancik, G. R. (2003). The external control of organizations: A resource dependence perspective. Stanford University Press.
Pfeffer, J. (1972). Size and composition of corporate boards of directors: The organization and its environment. Administrative science quarterly, 218-228.
Quttainah, M. A., Song, L., & Wu, Q. (2013). Do Islamic banks employ less earnings management? Journal of International Financial Management & Accounting, 24(3), 203-233.
Rahman, A. A., & Bukair, A. A. (2013). The influence of the Shariah supervision board on corporate social responsibility disclosure by Islamic banks of Gulf Co-operation Council countries. Asian Journal of Business and Accounting, 6(2).
Ünal, M. (2011), The Small World of Islamic Finance: Shariah Scholars and Governance – A Network Analytic Perspective, v. 6.0, Funds@Work.
Withers, M. C., Hillman, A. J., & Cannella, A. A. (2012). A multidisciplinary review of the director selection literature. Journal of Management, 38(1), 243-277.
Yermack, D. (1996). Higher market valuation of companies with a small board of directors. Journal of Financial Economics, 40(2), 185-211.
Zahra, S. A., & Pearce, J. A. (1989). Boards of directors and corporate financial performance: A review and integrative model. Journal of Management, 15(2), 291-334.
Zulkafli, A. H., Amran, A., & Abdul Samad, M. F. (2010). Board structure and firm value: a study on listed banking firms in the Asian emerging markets. International Journal of Business Governance and Ethics, 5(3), 157-177.
How to Cite
NOMRAN, Naji Mansour; HARON, Razali; HASSAN, Rusni. Bank Performance and Shari’ah Supervisory Board Attributes on Islamic banks: Does Bank Size Matter?. Journal of Islamic Finance, [S.l.], v. 6, p. 174-187, dec. 2017. ISSN 2289-2117. Available at: <>. Date accessed: 17 jan. 2018.