Sebelas Maret International Conferences, The 2nd INCREDIBLE

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Board compensation and risk taking in Islamic banks: Evidence from Indonesia
Tastaftiyan Risfandy

Building: Parallel Session 2
Room: B
Date: 2020-10-27 02:45 PM – 04:00 PM
Last modified: 2020-10-18


This paper investigates the impact of board compensation on risk taking in Islamic banks. The analysis of this issue is important because compared to their conventional peers, Islamic banks possess unique characteristics such as different risk profile they have and the existence of a Shariah board as another layer of governance. Using a sample of 13 Islamic banks in Indonesia from 2011 to 2018, our result suggests that Islamic banks’ risk taking is associated with a higher executive and commissioners’ compensation but not Shariah board compensation. This evidence suggests that higher compensation could lead to excessive risk taking in Islamic banks, similar to prior literature in conventional banks’ context. This empirical evidence also suggests an independent role of Shariah board in Islamic banks that should be maintained as an Islamic banks’ identity that makes them different to their conventional peers.