Corporate governance and performance of islamic and conventional banks in Jordan: a balanced scorecard approach

Global recession and failure in the banking sector pinpointed the fact of inactive ruJes and regulations of banks that should have been previously applied. Spreading out such rules, known as corporate governance elements, may have saved the world from the previous global crisis. Tlris study emerged to compare the effect of governance elements (financial reporting quality, corporate social responsibility, and intellectual capital) on bank performance for both conventional and Islamic banks in Jordan. Bank performance was divided into fmancial perspectives (profitability, employee activity, liquidity and asset quality) and non-financial perspectives (customer related, internal business, learning and innovation, and employee related), based on the balanced scorecard. As in Jordan most research exclude banks from balance scorecard studies, this research came to clarify how bank performance is affected by corporate governance. As Jordan is an Islamic country, based on additional rules derived from Shariah and religious perspectives, this research analyzed how Shariah may affect Islamic bank performance. The study was divided into two parts. The first part analyzed the financial perspectives of bank performance, using the financial annual reports to calculate performance ratios for the period 2011-2014. The population of banks comprised 21 conventional banks and 4 Islamic banks, as all banks in Jordan. Since results maybe insignificant because of uneven groups and small population, the research came to increase the number of ratios studied. Results for the first part of the study; related to the financial performance~ indicated that conventional banks were performing better than the Islamic banks, except for the latter's greater ability to cover unexpected withdrawals. Additionally, conventional banks were less risky than the Islamic banks, except for the Islamic banks' liquid ability to perform better in crisis, which supported previous findings. Results of the second part of the study was conducted through a structured questionnaire distributed to 206 bank branch managers; this survey indicated that corporate social responsibility had no influence on bank financial and non-financial perspectives. However, fmancial reporting quality and intellectual capital bad an effect on both performance perspectives, without any significant difference between the two types of banks except for employee-related perspectives, where conventional banks seemed to reaJize the importance of employees more than the competing Islamic banks. After factoring the moderating effect of Shariah and religious perspectives, results indicated the importance of corporate social responsibility. But interestingly, the Shariah Advisory Council had no effect on the variables. Since the balanced scorecard is based on the Stakeholders' Theory, which is practically difficult to imply to all parties, this constituted the main limitation of the study. Further study is recommended to investigate other corporate governance and performance perspectives, to examine more closely the results and relationships, or to investigate the same perspectives in greater depth.