Do ownership structures affect risk disclosure in Islamic banks? International evidence

This paper assesses the effects of deposits structure and ownership concentration on risk disclosure in Islamic banks. We based on a sample of 71 Islamic banks operating in 12 countries and observed over the period 2009-2014. We employed a risk disclosure index covering 9 dimensions. Our paper finding suggests that the level of risk disclosure is lower for Islamic banks with higher ownership concentration, leveraged bank, listed banks and Islamic banks. However risk disclosure is higher for Islamic banks with higher concentration of PSIA and higher foreign ownership, large Islamic banks, aged banks, Islamic banks operating in country with higher country transparency index, positively correlated to GDP and AAOIFI adoption. By disaggregating total risk disclosure into the 9 sub-categories, we are able to specify, also, the components of risk disclosure impacted by various determinants. Our findings suggest many policy implications. First, regulators have to improve corporate governance mechanisms in Islamic banking system through the optimization of ownership structure (dispersed ownership) in order to promote transparency and disclosure. Second, regulators and policy makers should revise guidelines in the main purpose to protect PSIAs holders (considered as minor shareholders without voting power) through promoting disclosure and transparency. Third, our findings can be useful for many international supervisory bodies like the IFSB and AAOIFI to evaluate transparency and disclosure standards.