Oversight bank risk-taking of Sharia and Audit committees: Conventional vs Islamic banks

Abstract

By utilizing the Fixed effect and GMM estimators for a sample of 57 Islamic banks and 102 conventional banks from 10 countries for the period 2002-2018, we examine the effect of the audit committees' and Sharia committees' effectiveness on the bank risk-taking behavior and its transmission mechanisms. The results reveal that an audit committee's independence, number of meetings, and financial expertise negatively affect conventional banks' risk-taking, suggesting that the high effectiveness of their audit committees may constrain banks' risk-taking activities. However, no such relationship is evident or observed case of Islamic banks. Instead, with a different transmission mechanism, the proportion of female members and the financial expertise in the Sharia committees negatively affect risktaking, but the Sharia committee size positively affects risk-taking in Sharia banks. These results indicate that a Sharia committee's high effectiveness can constrain risk-taking behaviors in Islamic banks.