National culture and Islamic bank risk-taking in the Middle East and Asian countries

ABSTRACT

This study investigates the influence of the national culture on risk-taking in Islamic banks. The sample comprises 60 Islamic banks in the Middle East, Southeast Asia, and South Asia from 2011 to 2019. Using the random effects generalized least squares model, we find that national culture influences risk-taking in Islamic banks, especially in the power distance dimension. Low power distance incentivizes greater risk. In low power distance countries, Islamic banks tend to adopt a more aggressive approach to their decisions because of the trust and authority of shareholders and depositors, resulting in excessive risk-taking. The findings have implications for regulators and Islamic bank managers to consider national cultural elements when developing bank risk management policies.

KEYWORDS:

• Islamic banks
• risk-taking
• national culture
• Middle East
• Asian countries

JEL CLASSIFICATION:

• G21
• N25
• Z10

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This research was funded by the Indonesia Endowment Fund for Education (LPDP), Ministry of Finance, Republic of Indonesia, with a research grant [KET-1797/LPDP.4/2019].