What are the key drivers of Fraud reporting in Takaful insurance? Evidence from count data models

Abstract

Purpose

This study aims at investigating the effect of corporate governance attributes on the Fraud disclosure of Takaful insurance companies in Saudi Arabia from 2014 to 2022.

Design/methodology/approach

This study uses a self-constructed disclosure index to quantify the level of fraud information using content analysis. The count regression (Poisson and negative binomial) models in panel data modeling are used to check the interdependence relationship between the Fraud disclosure and the corporate governance structure of 26 Takaful insurers.

Findings

The findings confirm the negative effect of ownership structure and the board size on the Fraud disclosure. However, the high proportion of independent board members, the audit board committee and the size of the risk board committee positively affect the extent of Fraud disclosure. Finally, this study provide evidence that large size of Shariah board is associated with a lower level of voluntary Fraud disclosure.

Research limitations/implications

Both economics-based theories and social exchange theory provide a better basis upon which to understand mechanisms by which board of directors in Takaful insurance provides external stakeholders with valuable information about corporate fraud.

Practical implications

It seems important to equip audit and Shariah board committee with the tools to give them an operational content that focus systematically on the “tone at the top” in investigating fraud, including disclosure and discipline.

Originality/value

Corporate governance is rapidly changing in Saudi Arabia and it is unclear whether adopting a corporate governance practices in financial institutions is appropriate for Islamic insurance companies.