PROPOSING AND TESTING A MODEL OF CORPORATE GOVERNANCE AND BANKS PERFORMANCE; A COMPARATIVE STUDY BETWEEN THE CONVENTIONAL AND ISLAMIC BANKS

Abstract

It is considered that corporate governance mechanisms play a crucial role in the success and survival of corporations. During the 1990s, due to the increased issues of corporate governance, many firms failed in developed countries like Australia and America. As a result, the area of corporate governance captures the attention of academics and regulators. The concept of corporate governance is investigated in different fields like Accounting, Marketing, and Finance.  Despite such extensive research on the topic, the financial crises of 2007 revealed the weaknesses of Corporate Governance. These arguments inspire the researcher to conduct a study for evaluating the role of corporate governance and risk governance over the financial performance of banks operating in Pakistan. As the corporate structure of conventional and Islamic banks varies, so researcher also compares the effect of corporate governance for both tiers of management. The present study has a sample size of 17 conventional banks and 7 Islamic banks operating in Pakistan during the time frame of 2010 to 2020. The results indicated the positive and significant effects of board size on the performance of conventional banks while it turns into negative in the case of Islamic banks. The findings of the present study suggest that the dedicated risk committee also significantly affects the financial performance of both conventional and Islamic banks in a positive way. An increase in the effectiveness of the Shariah supervisory committee will cause an increase in the financial performance of Islamic banks. This research paper also found that risk governance causes an increase in the risk-taking behavior of banks and ultimately increases the financial performance of both Islamic and conventional banks. The present study has some future directions for further research; this study is conducted only in the territory of Pakistan, while the future researcher may expand the boundaries to cross-border research. Future researchers may conduct the research before and after financial crises and then make a comparison.