Board Characteristics and Risk-Taking Decisions among Islamic Financial Institutions in Bangladesh

Abstract

The uneven performance of Western financial market has increased the demand by Muslim population for Islamic finance product and services. Recently, the non-Muslim investors particularly in Western countries have put attention and confidence on Islamic finance industry as they believe such industry is operated with high moral and religious value.  Besides, good governance in Islamic financial institutions (IFIs) provides better ability for the organizations to protect its stakeholders, reduce risk taking, and enhance its value. Nevertheless, the history of Islamic finance indicates that most of corporate governance failures have similar features with conventional bank scandals, namely ineffective board failure and excessive risk taking by management. Moreover, poor corporate governance leads to inefficient monitoring in the board, caused for higher risk in capital structure, lead to the collapse of the bank. Therefore, this study aims to examine the influence of board characteristics on Islamic Financial Institutions (IFIs) in Bangladesh. The study explored to evaluate the extant literature in order to establish linkage between the Corporate Board Characteristics and higher risk-taking decision. However, the study develops a conceptual framework to test the relationship between   Corporate Board Characteristics and higher risk-taking decision in the Islamic Financial Institutions (IFIs) in Bangladesh. This research contributes to the comparative IFIs literature on company governance and provides as source of information for policymakers and regulators, especially in the financial services region for devising strategies to deal with future economic crises.