Sharia Supervisory Board accounting background, cross-membership, and cost of equity capital: evidence from worldwide Islamic banking

Purpose This study aims to examine the relationship between the background of the Sharia Supervisory Board and the cost of equity capital. In addition, this study also examines whether the moderating role of cross-membership of the Sharia Supervisory Board affects the relationship. Design/methodology/approach To test the hypothesis, this study uses Islamic banking listed firms on the capital market from 15 countries during 2010–2021 with a total of 214 firm-year observations. To estimate the results, this study applies panel data analysis, robustness check and endogeneity test. Findings The results of this study confirm that the accounting education background of the sharia supervisory board plays an important role in reducing the cost of equity capital, which reflects lower investment risk. In the context of the resource-based view (RBV) theory, the accounting education background of the Sharia Supervisory Board can be considered as one of the unique resources or capabilities possessed by Islamic financial institutions. In addition, according to RBV theory, an organization’s competitive advantage can be obtained through rare, inimitable and valuable resources. In this case, solid accounting education provides better expertise and understanding of risk and financial management, which in turn can increase investor confidence. Research limitations/implications This study offers the new theoretical model in evaluating investment decisions in the Islamic banking sector. In addition, it opens up opportunities for further studies to explore the relationship between education background, cross-institutional membership and financial performance in the Islamic banking sector with different cultural and regulatory contexts. Practical implications By reducing the cost of equity capital through better supervision and managing risk, Islamic banking can increase investor confidence. This is essential to attract the capital needed for growth and expansion of business, as well as to enhance the institution’s reputation in the financial market. Originality/value By identifying cross-membership as a moderating variable influencing the relationship between accounting education and cost of equity capital, this study opens up new insights into the dynamics of interactions between board members.