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Purpose The purpose of this paper is to integrate conventional corporate governance (CG) mechanisms into the Islamic banking framework in order to examine their impact on Islamic banks (IBs) financial performance (IBFP) within the Gulf Cooperation Council (GCC) context. Design/methodology/approach The study uses a sample of 22 full-fledged IBs operating in the GCC countries over an 11-year period from 2005 to 2015. Using panel data approach, the paper develops an empirical model consists of five CG mechanisms and three control variables. The model parameters are estimated using feasible generalized least squares framework. Findings The results show that five internal CG mechanisms have statistically significant relationship with IBFP, measured by Q -ratio. Insider shareholding is found to be positively associated with IBFP, while institutional and government shareholdings are found to be negatively related to Q -ratio, the results being consistent with the agency theory, strategic alignment theory and property rights theory, respectively. Moreover, the results reveal that large board size and CSR engagement negatively influence IBFP, once again lending support to agency theory and trade off theory, respectively. The control variables, namely, leverage, size and age are also found to have a statistically significant relationship with IBFP. Practical implications IBs are urged to ensure transparency in the provision of innovative products fundamentally in contrast to conventional banking products as well as cater to the untapped markets by weaving Islamic values into the existing CG fabric, as a feasible solution to remain competitive. Originality/value The paper examines the relationship between internal CG mechanisms and financial performance of listed and non-listed full-fledged IBs operating in the GCC countries.
Al‐Malkawi et al. (Wed,) studied this question.