Impact of External Governance on Financial Performance: Evidence from Islamic Banks

Abstract

The basic purpose of this study is to analyze the impact of external governance system on the financial performance of Islamic banks. Strong governance system protects all the stakeholders either they belong to primary or secondary stakeholders. The recent increase in the acceptance of Islamic economic system in the entire world brings attention to the researcher to know the impact of governance system on the banks financial performance. This study collected data from selected Asian countries, including, Pakistan, Afghanistan, Jordan, Maldives, Qatar, Saudia Arabia, and United Arab Emirates and the sources of data are Bank scope and world bank. This study covers twenty-five banks, and the study covers the period from 2016 to 2020. This study employed a panel data analysis on 125 observations to extract the results. In this study, authors used two proxies to measure the financial performance of the Islamic banks, i.e. Return on Assets (ROA) and Return on Equity (ROE). Based on the panel data analysis and estimation techniques, this study found that external governance has no impact on Islamic banks financial performance. This study provides a direction that external governance has no meaningful impact on the performance, but the management cannot ignore the external governance for their operations. The current study strengthens the literature of corporate governance and the determinants of financial performance of Islamic banks.