Evidence of Resilience in Islamic Banking System in Pakistan: The role of Islamic Corporate Governance System

Abstract

Keeping in view the unique structure of corporate governance (CG) of Islamic Banks (IBs), this study investigates the effects of Islamic CG on the performance of IBs of Pakistan before and during the global financial crisis (GFC) of 2007-08. Specifically, the study investigates the performance of Sharia Supervisory Board (SSB), Board of Directors (BOD) and Ownership Concentration (OC). The sample consists of all the IBs from Pakistan for the period 2003-2016. The results of the study report a positive impact of the size of Sharia Supervisory Board on the performance of Islamic Banks. While GFC has a marginal negative effect on return on assets (ROA) of these banks, however, this effect becomes irrelevant by adding more CG variables such as Ownership concentration. The study in addition to contributing towards a theory of Islamic Corporate Governance, also contributes to the literature regarding the effects of GFC on IBs in Pakistan. Due to the scarcity of literature on CG of IBs in Pakistan, this study also contributes to the CG literature and its effects on IBs.