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The Effects of Regulation and Supervision on the Risk-Taking Behaviour of Islamic Banks

Asutay, M.; Ayturk, Y.; Aksak, E.

The Effects of Regulation and Supervision on the Risk-Taking Behaviour of Islamic Banks Thumbnail


Y. Ayturk

E. Aksak


Purpose: This study examines the impact of the regulatory and supervisory environment on the risk-taking behaviour of Islamic banks. The impact of the heterogeneous nature of the banking environment in the sampled countries is also considered. Design/methodology/approach: A dynamic panel data analysis with system GMM estimators was used with a sample consisting of 120 Islamic banks from 21 countries for the period 2000-2013. Findings: The results demonstrate that main regulation and supervision proxies have significant negative effects on risk levels of Islamic banks, which implies that further restricted regulatory and supervisory environment can lower risk levels of Islamic banks. In addition, the Islamic banks operating under the dual banking system seem to prefer to take a lower risk. Furthermore, the results identify that a stable political environment encourages Islamic banks to take higher risks in their operations. Originality/value: In addition to examining the common factors, the empirical analysis in this study is extended to the investigation of the effects of several political indicators on risk-taking behaviour of Islamic banks, which should be considered as an important contribution.

Journal Article Type Article
Acceptance Date Feb 10, 2020
Online Publication Date Aug 14, 2020
Publication Date Jan 1, 2020
Deposit Date Feb 11, 2020
Publicly Available Date Aug 20, 2020
Journal Journal of Islamic Accounting and Business Research
Print ISSN 1759-0817
Publisher Emerald
Peer Reviewed Peer Reviewed
Volume 11
Issue 9
Pages 1953-1967
Public URL


Accepted Journal Article (749 Kb)

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Copyright Statement
This article is made available under a Creative Commons Attribution Non-commercial International Licence 4.0 (CC BY-NC 4.0) and any reuse must be in accordance with the terms outlined by the licence.

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