Risk in Islamic banking and corporate governance

We examine the differences in risk between Islamic and conventional banks with specific attention to the role of Shariah supervisory board (SSB) composition on risk in Islamic banks. Using a sample of banks from 28 countries, we find that Islamic banks have a higher liquidity risk, lower credit risk, lower insolvency risk, but encounter similar operational risk in comparison with conventional banks. Operational and insolvency risks in Islamic banks decline with an increase in SSB size and SSB members' academic qualifications, but increase with an increase in the number of reputed Shariah scholars on the SSB. The SSB attributes do not have significant influence on liquidity and credit risks. The findings are robust to alternative risk measures, and the use of a system GMM estimator.