Momentum investment strategies, corporate governance and firm performance: an analysis of Islamic banks

Tasawar Nawaz

54 citations0/0 files storedCorporate Governance

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Islamic Finance and Banking Studies Corporate Finance and Governance Intellectual Capital and Performance Analysis

Abstract

Purpose The purpose of this paper is to empirically examine the effect of investments in organisational resources and corporate governance features on market-based performance of Islamic banks (IBs). Design/methodology/approach The required data to calculate different constituents of banks’ investment strategies and governance mechanism were hand collected from 268 annual reports. Different regression models were used to determine the impact of investment in human and structural capital and corporate governance features on market performance of IBs. Findings The paper finds that investments in knowledge resources (human capital, in particular) have a significantly positive impact on the market value of IBs. The results further reveal that IBs’ strategy to rely on long-term human capital accumulation can be seen as idiosyncratic problem-solving knowledge capital. Based on market measure, the paper finds role duality to have a significant positive impact and the size of the advisory board to have the opposite effect on market value. Research limitations/implications This study includes IBs only and ignores other Islamic financial services providers such as Takaful (insurance) companies. The study leaves this chasm to be filled by future researchers. Practical implications The findings may serve as a useful input for both Islamic bankers and regulators to apply knowledge management in their institutions. Furthermore, the dominant role of human capital also provides insight to managers with respect to business performance levers. Originality/value The main contribution of this paper is to provide insight into the Islamic banking business model using a unique hand-collected data set, to identify the effect of investments in organisational resources and bank governance on market value in before, during and after financial crisis.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1991Firm Resources and Sustained Competitive Advantage 2004Firm resources and sustained competitive advantage 1984A resource‐based view of the firm 1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1997A Survey of Corporate Governance 1993Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency 1984Upper Echelons: The Organization as a Reflection of Its Top Managers

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