Does board diversity in Islamic banks matter?

Abstract

Purpose – This paper discusses the diversity of boards and the performance of Islamic banks in three different conditions. Specifically, I will prove whether the diversity of the board is important for the performance of Islamic banks in normal conditions, turbulence, and recovery. Methodology – The data includes all Islamic and conventional commercial banks in Indonesia during 2018-2022. The research period is divided into normal, turbulent, and recovery conditions. The data were analyzed with a panel regression model. Findings – The results show that the level of board diversity in Islamic banks is lower than that of their conventional counterparts. In general, the level of board diversity is very important to encourage better bank performance. The effect of board diversity on performance is only significant in recovery conditions, but in times of turbulence, it is the opposite. In addition, I also find that diversity is most important for the BoD, while for the BoC it is the opposite. Novelty – This study is different from previous research. This study examines the factors of board diversity as a whole and focuses on board diversity as a whole. Therefore, this research will better reflect the actual conditions. Originality – This is the first paper to study the relationship between board diversity and bank performance in three conditions. It is also the first to compare the effects of diversity on Islamic banks with their conventional counterparts.