Shari'ah supervision, corporate governance and performance: Conventional vs. Islamic banks

The performance and accountability of boards of directors and effectiveness of governance mechanisms continue to be a matter of concern. Focusing on differences between conventional banks and Islamic banks, we examine the effect of (i) Shari-ah supervision boards, (ii) board structure and (iii) CEO-power on performance during the period 2005-2011. We find Shari'ah supervision boards positively impact on Islamic banks' performance when they perform a supervisory role, but the impact is negligible when they have only an advisory role. The effect of board structure (Board size and board independence) and CEO power (CEO-chair duality and internally recruited CEO) on the performance of Islamic banks is overall negative. Our findings provide support for the positive contribution of Shari'ah supervision boards overall negative. Our findings provide support for the positive contribution of Shari'ah supervision boards overall negative. Our findings provide support for the positive contribution of Shari'ah supervision boards but also emphasize the need for enforcement and regulatory mechanism for them to be more effective.

Etika finantzetan: ikertutako gaien analisia

Ondoren aurkezten den lana bi helburu nagusi ditu. Alde batetik, Etika Finantzarioak gaur egun duen egoera aztertzea, eta bestalde analizatzea egin diren ikerketak zertan zentratu diren. Horretarako, lan hau oinarrituko da 205 ISI artikuluetan, Leire San-José (UPV/EHU) irakasleak zuzendutako Delphi baten parte direnak. Beraz lan honen zati adierazgarriena bi bloke nagusitan bananduko da. Lehenengoan, artikuluetatik atera ahal diren datu guztiz teknikoak analizatuko dira, esate baterako: publikazio urtea, zein herrialdeetan idatzi diren, zein hizkuntzetan, etab; batez ere ondorengo galderei erantzuna eman ahal izateko: noiz ikertu da gehien? Zein herrialdeetan? Zein gaiei eman zaie garrantzia handiagoa?... Bigarren atalari dagokionez, Etika Finantzarioa osatzen duten gaien gehiengoei buruz egin diren ikerketen azalpen eta komentarioak jorratuko dira. Baina aurrekoaz aparte, mapa kontzeptual bat aurkeztuko da, gai honen azpi-gai eta kontzeptu klabe bilduz; eta horrela, modu argiago batean ikusi ahal izateko Etika Finantzarioa zertan datzan, zeintzuk diren bere barnean dauden gai garrantzitsuenak, eta zein faktore nagusiak dauden gai honetan. Azkenengoz, ondorio batzuk aurkeztuko dira, horien artean gai honek etorkizunean ikertzeko duen ibilbidea egongo delarik.

Ethical screening and financial performance : the case of Islamic equity funds

Whether ethical screening affects portfolio performance is an important question that is yet to be settled in the literature. This paper aims to shed further light on this question by examining the performance of a large global sample of Islamic equity funds (IEFs) from 1984 to 2010. We find that IEFs underperform conventional funds by an average of 40 basis points per month, consistent with the underperformance hypothesis. In line with popular media claims that Islamic funds are a safer investment, IEFs outperformed conventional funds during the recent banking crisis. However, we find no such outperformance for other crises or high volatility periods. Based on fund holdings-based data, we provide evidence of a negative curvilinear relation between fund performance and ethical screening intensity, consistent with a return trade-off to being more ethical.

Umbilical Cord Blood Banking

The umbilical cord, previously considered as waste and discarded at birth, is a source of haematopoietic stem cells. Current therapeutic uses of umbilical cord blood stem cells and the promise of these cells for the treatment of degenerative diseases in the future have led to the establishment of cord blood banks in many parts of the world. Although umbilical cord blood banking raises many ethical and legal issues, this article focuses on the controversy created by the coexistence of public and private cord blood banks in many countries. Policy statements adopted by professional associations and advisory groups indicate that, based on the current state of medical evidence, childbearing women with no current or potential familial need of stem cell transplantation should be encouraged to donate cord blood to public banks.

Does it pay to be socially responsible? Evidence from spanish retail banking sector

This paper presents a theoretical and empirical analysis of strategic competition in retail banking when some of the financial firms are non-profit organisations that invest in social activities. Banking literature about competition is fairly large, but the strategic interaction between profit maximizing and non profit maximizers has not been extensively analysed except for Purroy and Salas (1999). In this paper, a completely different approach is taken. An adaptation of Hotelling’s two stage model of spatial competition is developed to take into account consumer perceptions respect to the two different types of financial institutions. The empirical analysis confirms that consumers take into account other features different from the price, such as social contribution or closer service to make a deposit or mortgage decision. These conclusions are of interest in the debate about a firm’s social or ethical activities. It is shown that if consumers value social activities, firms can improv

Swiss Banking Secrecy; The Erosion of an Institution. IES WORKING PAPER 2/2008

Switzerland has for a long time been an important centre of banking services in Europe and beyond. Consequently, the banking sector has become important to Switzerland’s prosperity. This paper focuses on a central reason behind the success of the Swiss banking sector: the institution of banking secrecy, deeply enshrined in the Swiss history and tradition. The rapid development of international markets that eventually gave rise to a “group structuration process” has, however, progressively eroded Swiss banking secrecy. It has had to bend before the duty of transparency within the groups in order not to promote financial criminality through accelerated asset inflows. Switzerland has also had to develop a comprehensive legislative frame to tackle financial criminality, and to enter into international agreements providing for mutual assistance. This process has undoubtedly and irremediably weakened the Swiss banking secrecy. Most importantly, nevertheless, the questionable ethical and socio-economic grounds of this controversial institution could and should also start to erode it from within.

Ethical reporting in Islami Bank Bangladesh Limited (1983-2010)

The main aim of this study is to undertake a critical examination of the ethical and developmental performance of an Islamic bank as communicated in its annual reports over a period of 28 years (1983-2010). Islami Bank Bangladesh Limited's (IBBL hereafter) ethical performance and disclosures are further analyzed through interviews conducted with the bank's senior management. The key findings include an overall increase in ethical disclosures during the study period. However, the focus on various stakeholders' needs has varied over time reflecting the evolving nature of the Islamic finance industry over the last three decades. Based on a secular economy, IBBL focused in the first two decades on the "Particular" Shariah compliance disclosure as a way of establishing its reputation and differentiating itself from conventional banks in a dual banking system. Post 2005, the ethical performance and disclosure shifted to more "Universal" disclosures such as sustainability, charity, employees, and community related disclosures signaling responsible conduct and the bank's adoption of a "wider stakeholder approach." However the bank is still failing to provide full disclosure on certain significant categories such as sources and uses of disposable income, thereby contradicting the principles of full and comprehensive disclosure and accountability. In addition, the structure of IBBL's investment portfolio reveals an overreliance on debt-based financial instruments and a shortcoming in fulfilling the developmental and social objectives of Islamic finance. This is evidenced by the "qualified" Shariah Supervisory Board reports that the bank consistently received. This research provides further evidence that Islamic banking and Finance in its current practices reflect the "global" and the "local" influences in an era dominated by global conventional finance. © 2014 Springer Science+Business Media Dordrecht.

Impact of ethical behavior on syndicated loan rates

This paper shows that borrowers’ ethical behavior leads lending banks to loosen financing conditions when setting loan rates. We advance the banking literature by stressing that the previous financing loosening is enhanced when there is similarity of lenders and borrowers along their ethical domain given that such similarity brings about familiarity and trust in non-opportunistic behavior between them, thereby contributing to lower information frictions. Unique data composed of 12,545 syndicated loan facilities from 19 countries for the period 2003–2007 indicate a 24.8% reduction in the mean spread associated with an increase of one standard deviation in the degree of borrowers’ ethical behavior from its mean value. Such reduction is enhanced to 37.6% when lenders also behave in an ethical way. Results withstand a battery of robustness tests including the use of alternative databases that capture the effect of the 2008 financial crisis, financing alternatives such as equity financing as well as nonparametric estimations.