Islamic Governance, National Governance, and Bank Risk Management and Disclosure in MENA Countries

Abstract

This paper examines the relationships among religious governance, especially Islamic governance quality (IGQ), national governance quality (NGQ), and risk management and disclosure practices (RDPs); and consequently ascertains whether NGQ has a moderating influence on the IGQ-RDPs nexus. Using one of the largest datasets relating to Islamic banks from 10 Middle East and North Africa (MENA) countries from 2006 to 2013, our findings are three-fold. First, we find that RDPs are higher in banks from countries with higher NGQ. Second, the results also show that IGQ is positively related to RDPs. Finally, we find evidence that suggests that NGQ has a moderating effect on the IGQ-RDPs nexus. These results are consistent with the predictions of our multi-theoretical framework that incorporates insights from agency, signalling, legitimacy, institutional, and resources dependence theories. Our findings also are robust to alternative calculation procedures for the RDPs and to alternative estimation techniques. These results confirm the notion that the disclosure quality depends on the nature of the macro-level factors, such as religion and national governance that have remained unexplored in business and society research, and therefore have important implications for policy-makers.