Moral hazard and risk-taking incentives in Islamic banks, does franchise value matter!. Issue 1 (18th April 2017)

• Record Type: Journal Article
• Authors: Mili, Mehdi; Abid, Sami
• Is Part Of: International journal of Islamic and Middle Eastern finance and management. Volume 10:Issue 1(2017)
• Page Start: 42
• Page End: 59
• Publication Date: 2017-04-18
• Subjects: Islamic banks -- Ownership structure -- Bank risk-taking -- Franchise value; C26 -- G21 -- G28 -- G30; Finance -- Religious aspects -- Islam -- Periodicals; Financial institutions -- Religious aspects -- Islam -- Periodicals; Financial institutions -- Islamic countries -- Periodicals; Finance -- Islamic countries -- Periodicals; Management -- Religious aspects -- Islam -- Periodicals; Management -- Islamic countries -- Periodicals; 332.09176705
• DOI: 10.1108/IMEFM-12-2015-0148
• Languages: English
• ISSNs: 1753-8394

Abstract

Abstract : Purpose: This paper aims to examine risk-taking in Islamic banks by exploring moral hazard and owner/manager agency problems simultaneously. Design/methodology/approach: The authors propose to estimate a model of bank risk-taking that includes both franchise value and ownership structure as explanatory factors of bank risk. Findings: The results show that franchise value is an important determinant of Islamic bank risk-taking. Banks with high franchise values are less likely to take risks than banks with low franchise value. In contrast, outside block holders have, at best, limited influences on bank risk-taking. Originality/value: This paper conducts the first empirical examination of the relationship between managerial risk preferences and Islamic banks ownership. The authors examine simultaneously the effect of franchise value and owner/manager problem on Islamic bank risk taking behavior. They consider separately the impact on total risk, systematic risk and bank specific risk.