Does CEO power affect operational risk and ESG disclosure in Islamic banks? Evidence from the banking sector

Purpose This study aims to explore the intricate relationship between Environmental, Social, and Governance (ESG) disclosure, chief executive officer (CEO) power and operational risk (OR) in Islamic banks across the Gulf Cooperation Council (GCC) countries. It seeks to determine whether ESG transparency and executive authority function as complementary mechanisms in mitigating operational risks. Design/methodology/approach The study invests in fixed-effects panel data regression models to examine the relationship, based on 126 bank-year observations from Islamic banks that disclose ESG information in their annual reports. ESG disclosure is quantified using a self-constructed index that captures dimensions. Findings The results corroborate that as the combined ESG score increases, OR decreases. The interaction between ESG disclosure and CEO power negatively impacts OR, suggesting that the negative association between ESG disclosure and OR is more pronounced in banks with higher CEO power. Originality/value This study sheds light on the underexplored link between CEO power, ESG disclosure and OR in Islamic banks. It highlights how ethical governance and transparency serve both risk mitigation and deeper philosophical commitments of justice and stewardship. Islamic banks, governed by Sharia principles, operate under distinct ethical, legal and operational frameworks that justify a separate analysis. Focusing on GCC countries, this research contributes to the scarce literature on value-based financial decision-making within Islamic finance.