Iranian Economic Review

Iranian Economic Review

The Relationship between Corporate Governance, Financial Performance and Financial Stability: Case of Islamic Banks of GCC Countries

Document Type : Research Paper

Authors
Zaineb Bououn 1
Wissem Benali 2
Jamel Eddine Mkadmi 3
1 Institute of Higher Commercial Studies of Sousse, Sousse 4000, Tunisia.
2 ESCT, University of Manouba, LARIMAR, Manouba, Tunisia.
3 Higher institute of business administration of Gafsa, Gafsa, Tunisia.
10.22059/ier.2024.376808.1008014
Abstract
This study investigates the stability issues of Islamic banks (IBs) in Gulf Cooperation Council (GCC) countries, with a particular focus on the relationship between IB stability and corporate governance mechanisms. Utilizing the Z-score methodology and examining the impact of corporate governance variables on IB stability, the research aims to assess whether stability issues pose threats to all financial institutions in the GCC region. Unlike previous cross-country studies, this research concentrates on country-level data from Malaysia's banking industry, providing complementary insights into the emerging literature on Islamic banking stability. Employing a sample of 100 Islamic banks using the generalized method of moments (GMM), the study examines variables such as Shari'ah board size, board size, and independent directors alongside the Z-score as the dependent variable, aiming to provide a comprehensive understanding of the governance mechanisms influencing IB stability. The analysis underscores the complexity of the relationship between financial performance and stability, highlighting both positive and negative impacts. While high financial performance can enhance stakeholder confidence and governance effectiveness, it may also lead to behaviors undermining long-term stability, such as excessive risk-taking and moral hazard. The study also emphasizes the significance of financial stability measures, such as the Z-score, in assessing the health of financial institutions. In conclusion, the research contributes to the understanding of stability issues in Islamic banking and underscores the importance of effective governance mechanisms in ensuring the resilience of financial institutions in the GCC region.
Keywords
duality
governance
performance
size
stability.
Subjects
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Iranian Economic Review
Volume 30, Issue 3
Summer 2026
Pages 1009-1028