Financial governance, religious oversight and the value of cash holdings: evidence from Islamic and conventional banks

Purpose This study aims to examine the link between level of corporate governance and the value of cash reserves in the banking sector. Design/methodology/approach The study sample consists of 73 banks (32 Islamic banks [IBs] and 41 conventional banks [CBs]) over the period 2013–2022. The authors constructed their return model, which accounts for corporate governance, quality of Shariah supervisory boards (SSB) and cash holding while controlling for firm and macroeconomic factors. Findings Overall, the findings indicate that for CBs, there is a significant difference between the value of cash holdings across poorly and well-governed banks. In case of IBs, there was no significant relationship between level of corporate in general and value of cash reserves, but there was a significant relationship between value of cash reserves and the quality of SSB. More importantly, the reputation dimension of SSB members is more important as compared to their educational background or the presence of Internal Shariah Board. Originality/value This study extends the limited literature on the effects of corporate governance on the value of cash reserves by including in the analysis of IBs, which have an additional layer of governance in the form of SSB. Therefore, the authors identify any differences in IBs and CBs on the effects (value destruction/creation) of corporate governance on the level of cash reserves.