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International Journal of Economics and Financial Issues | Vol 6 • Special Issue (S6) • 2016 135

International Journal of Economics and Financial 
Issues

ISSN: 2146-4138

available at http: www.econjournals.com

International Journal of Economics and Financial Issues, 2016, 6(S6) 135-137.

Special Issue for "IPN Conferences, May 2016"

Board Characteristics and Earnings Per Share of Malaysian 
Islamic Banks

Isah Shittu1*, Ayoib Che Ahmad2, Zuaini Ishak3

1School of Accountancy, College of Business, Universiti Utara Malaysia - 06010, Sintok, Kedah, Malaysia, 2School of Accountancy, 
College of Business, Universiti Utara Malaysia - 06010, Sintok, Kedah, Malaysia, 3School of Accountancy, College of Business, 
Universiti Utara Malaysia - 06010, Sintok, Kedahs, Malaysia. *Email: isahshittu15@yahoo.com

ABSTRACT

Board characteristics of the corporate organization represent an important aspect of corporate monitoring. This study examined the effects of board size 
(BS), the size of shariah supervisory board SSB and shariah board members meeting on the earnings per share of the Malaysian Islamic banks. The 
study used data from sixteen (16) full-pledged Islamic banks in Malaysia for 6 year period (2010-2015). The study used pool ordinary least square to 
estimate the regression after satisfying post - estimation tests. The results reveal significance positive relationship between BS, shariah board meeting 
and EPS at 1% level of significance. On the other hand, a negative relationship was found between shariah BS and EPS. The negative relationship 
between SSB size and EPS could be due to non-disclosure of the minimum number of shariah board members by some banks.

Keywords: Board Characteristics, Islamic Banks, Malaysia 
JEL Classifications: M40, M41, M48

1. INTRODUCTION

Earnings per share (EPS) refer to the percentage of a firms profit 
apportioned to each of the outstanding shares of common stock. 
The EPS serve as an important indicator for the profitability of 
a company. EPS is the most important measure of performance 
indicator reported by company managements to the shareholders, 
market and other interested parties (Jorgensen, et al. 2014). The 
high quarterly EPS encourage top executives management’s results 
to huge stock repurchases to helped them manage stock prices of 
their respective companies (Lazonick, 2014). Generally, EPS is 
the amount of money every share of common stock would get if 
all of the company profits were shared to the shares outstanding at 
the year end. The question here is whether corporate governance 
variables measured by board size (BS), SBS and shariah board 
meetings impact on the EPS of Islamic banks in Malaysia.

Corporate Governance variables are regarded as global issues 
that attracted arguments among researchers, portfolio analysts 
and other actors in corporate administrations. The financial 

scandals in the recent period are largely credited to the failure of 
those organizations in their governances practices and that have 
upset the hope of the investing public (Strier, 2005). Corporate 
governance CG involves all those process and procedures whether 
structured or unstructured; principle or rule based that guides how 
a corporate entity is administered and control. CG variables also 
involve both internal and external governance mechanisms that 
guide the direction of the company for maximum shareholders 
benefit. The board of directors represents an important mechanism 
for corporate control and responsible for the overall monitoring 
of the management. In addition to the board of directors, Islamic 
financial institutions IFIs including Islamic banks are mandated 
to have Shariah Supervisory Board SSB to ensure that, the 
operations of the company are in conformity with principles of 
shariah (Islamic law). Similarly, the SSB are required to conduct 
meetings regularly to review bank operations and to approve a 
new product that may be introduced by the bank.

However, there is a little theoretical effort on the relationship 
between these governance variables and performance of Islamic 



Shittu, et al.: Board Characteristics and Earnings Per Share of Malaysian Islamic Banks

International Journal of Economics and Financial Issues | Vol 6 • Special Issue (S6) • 2016136

banks, more importantly, earnings to shareholders. This study 
filled a gap in the literature by empirically examining the effect of 
BS, SBS and SSB meetings on EPS of Malaysian Islamic banks.

2. LITERATURE AND HYPOTHESES

There is large empirical literature on the relationship between BS 
and board meetings on the performance of conventional corporate 
organizations. Some of the studies established a significant 
positive relationship between the variables and firm value while 
others reported a negative relationship. For example, Linck et al. 
(2008) reported that average increase in the number of BS is 
positively and significantly related to firm value amongst sample 
firms in the US. Firm BS has positive and significant relationship 
with subsequent firm value (Alimehmeti and Paletta, 2014). 
Similarly, Johl et al. (2015) tested board characteristics and firm 
performance amongst listed firms in Malaysian firms. The study 
findings showed that BS is associated with firm performance 
and board diligence also frequency of members meetings has a 
significant influence on the firm performance. In addition, Hoque 
et al. (2013) studied the frequency of company board meetings on 
the financial performance of firms in Australia. The findings of 
the study revealed a positive and significant relationship between 
the board frequencies of meetings and performance measured by 
return on asset and return on equity. On the contrary, Guest (2009) 
established that BS has significant negative impact on the Tobin’s q 
and share return of the UK firms. BS has no significant association 
with the firm value measured by EPS (Gherghina, 2015). The 
theoretical background of this study is the agency theory; the 
theory explains the relationships which exist between principals 
(capital providers) and agents (managements). The theory designed 
to provide answers to the principal-agent problem. To achieve the 
objective of the study, the following hypotheses are tested.
H1:  BS has a positive relationship with EPS of Malaysian Islamic 

banks
H2:  Shariah supervisory BS has a positive relationship with EPS 

of Malaysian Islamic banks
H3:  Shariah supervisory board meetings has a positive relationship 

with EPS of Malaysian Islamic banks.

3. METHODOLOGY

The study used secondary data from the published annual reports 
of the sixteen (16) Islamic banks in Malaysia. The data are 
collected on the individual bank basis for the period of six (6) years 
(2010-2015). The research utilized pool ordinary least square to 
estimate the regression and the post estimation test of normality, 
homoscedasticity, specification test and multicollinearity are 
satisfied.

3.1. Model Specification
EPSit = β0+β1BSit+β2SBSit+β3SBMit+β4LTAit+εit

Where EPS = Earnings per share of banks over the period, BS = 
Board size, SBS = Shariah BS, SBM = Shariah board meetings 
and LTA = Natural log of total asset and ε is the error term for 
variables not captured in the model (Table 1).

4. RESULTS AND DISCUSSIONS OF 
FINDINGS

The descriptive statistic results revealed a mean and standard 
deviation SD values of 3.3,80,454 and 1.1,47,723 for EPS, 
8.1,26,582 and 2.1,50,534 for BSIZE, 4.75,641 and 1.7,66,837 for 
SBSIZE, 8.7,54,098 and 4.6,49,931 for SBMEET and 3.3,79,871 
and 0.94,65,095 for a log of total assets respectively. The minimum 
BSIZE is 3 and a maximum of 13, SBSIZE has a minimum of 
0 and maximum of 9 due some banks under the sample failure to 
disclose their shariah board. The SD values clustered around the 
mean suggesting the normality of the data set (Table 2).

The correlation matrix table revealed a positive correlation of 
0.2505 for BSIZE, the negative correlation of 0.3462 for SBSIZE, 
positive correlation of 0.0179 for SBMEET and positive correlation 
of 0.0034 for LTASSET and EPS Malaysian Islamic banks. The 
variable with the highest correlation is SBMEET and SBSIZE 
with a value of 0.5545 suggesting absence of multicollinearity in 
the model (Table 3).

The regression result presents a positive coefficient of 0.21,40,623 
between BS and EPS of Malaysian Islamic banks (Table 4). 
This means that for every increase in BS from an average of 8 
the EPS will increase by 0.2140623 Malaysian Ringgit (MYR). 

Table 1: Variable definition and measurement
EVM variables Measurements
EPS Net profit less preference dividend 

divide by common stock
BS Total number of board members 

serving in the bank 
SBS Total number of number of shariah 

supervisory board members in the bank
Shariah board members 
meeting (SBM)

Total number of meetings held by 
shariah committee members in the year

Total asset Natural log of total asset
SBS: Shariah board size, BS: Board size, EPS: Earnings per share

Table 2: Descriptive statistics
Variable Mean±SD Minimum Maximum
EPS 3.3,80,454±1.1,47,723 −0.94,16,085 5.6,53,541
BSIZE 8.1,26,582±2.1,50,534 3 13
SBSIZE 4.75641±1.7,66,837 0 9
SBMEET 8.7,54,098±4.6,49,931 0 21
LTASSET 3.3,79,871±0.94,65,095 1.2,32,333 4.3,69,448
EPS: Earnings per share, BS: Board size, SSBS: Shariah supervisory board size, 
SBM: Shariah board meetings, LTA: Natural log of total asset, ε: Error term for variables 
not captured in the model

Table 3: Correlation matrix results
Variable EPS BSIZE SBSIZE SBMEET LTASSET
EPS 1.0000
BSIZE 0.2505*** 1.0000
SBSIZE −0.3462*** 0.0361 1.0000
SBMEET 0.0179*** −0.2509 0.5545 1.0000
LTASSET 0.0034 −0.2039 −0.3083 −0.1084 1.0000
***Significant at 1% level of significance



Shittu, et al.: Board Characteristics and Earnings Per Share of Malaysian Islamic Banks

International Journal of Economics and Financial Issues | Vol 6 • Special Issue (S6) • 2016 137

The probability of BS to EPS is 0.00 indicating a positive and 
significant relationship between the variables. The interpretation 
is that BS impacts positively to the EPS of the shareholders 
at the 1% level of significance. This provides a convincing 
evidence of accepting the study hypothesis which predicts a 
positive relationship BS and EPS of Malaysian Islamic banks. 
The result conforms to study of Johl et al. (2015) and contradicts 
Gherghina, 2015. Similarly, the result shows a negative coefficient 
of -.4302993 between SSB size and EPS of Malaysian Islamic 
banks. This suggests that an increase in SBS from an average of 4 
the EPS will decrease by 0.2140623 MYR. The probability of SSB 
to EPS is 0.00 indicating a negative and significant relationship 
between the variables. The interpretation is that SSB size impacts 
negatively to EPS of shareholders at 1% level of significance. This 
provides a convincing evidence of rejecting the hypothesis which 
predicts a positive relationship SSB size and EPS of Malaysian 
Islamic banks. The possible reason why the negative relationship 
was found between SSB size and EPS may be due to violation 
of some banks under the sample to disclose minimum SBS of 
three (3) in their annual report. In fact, some of the banks did not 
disclose their SSB members. On the shariah board meeting the 
result reveals a positive coefficient of 0.10,73,845 between SSB 
meetings and EPS of Malaysian Islamic banks. This means that for 
every increase in board meeting from an average of 8 the EPS of 
Islamic banks will increase by 0.10,73,845 MYR. The probability 
of SSB meeting to EPS is 0.01 indicating a positive and significant 
relationship between the explained and the explanatory variables. 
The interpretation is that SSB meetings impact positively to the 
EPS of the shareholders at the 1% level of significance. This 
provides a substantial evidence for accepting the hypothesis of the 
study which predicts a positive association between SSB meetings 
and EPS of Malaysian Islamic banks. The findings supported 
Hoque et al. (2013). On the overall, the R2 is 31% suggesting that 
31% of the variation in the EPS is explained by the 3 CG variables 

and 69% by other factors not captured in the model. The combined 
probability is statistically significant at 1% level of significance.

5. CONCLUDING REMARK

This study empirically examined the influence of BS, shariah 
supervisory board and shariah board meetings on the EPS of 
Malaysian Islamic banks. The study established a positive and 
significant relationship between BS and shariah board meetings 
of Islamic banks and EPS. However, the SBS was negatively 
related to EPS of the banks. This could be due to failure of some 
banks to comply with disclosure of minimum number of shariah 
board members as required by Bank Negara Malaysia. The 
study, therefore, recommends more vigilance to Islamic banks to 
ensure adherence to the regulatory guidelines. The 3 CG variables 
explained 31% of the variation in the EPS of Malaysian Islamic 
banks while the remaining 69% are explained by other factors.

REFERENCES

Alimehmeti, G., Paletta, A. (2014), Corporate governance indexes: The 
confounding effects of using different measures. Journal of Applied 
Economics and Business Research, 4(1), 64-79.

Gherghina, Ş.C. (2015), Corporate governance ratings and firm value : 
Empirical evidence from the bucharest stock exchange. International 
Journal of Economics and Financial Issues, 5(1), 97-110.

Guest, P.M. (2009), The impact of board size on firm performance: 
Evidence from the UK. The European Journal of Finance, 15(4), 
385-404.

Hoque, M.Z., Islam, M.R., Azam, M.N. (2013), Board committee 
meetings and firm financial performance: An investigation of 
Australian companies. International Review of Finance, 13(4), 
503-528.

Johl, S.K., Kaur, S., Cooper, B.J. (2015), Board characteristics and firm 
performance: Evidence from Malaysian public listed firms. Journal 
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Jorgensen, B.N., Lee, Y.G., Rock, S. (2014), The shapes of scaled earnings 
histograms are not due to scaling and sample selection: Evidence 
from distributions of reported earnings per share. Contemporary 
Accounting Research, 31(2), 498-521.

Lazonick, W. (2014), Profits without prosperity: Stock buybacks 
manipulate the market and leave most Americans worse off. Harvard 
Business Review, 5, 1-11.

Linck, J., Netter, J., Yang, T. (2008), The determinants of board structure. 
Journal of Financial Economics, 87, 308-328.

Strier, F. (2005), Conflicts of interest in corporate governance. Journal 
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Table 4: Regression results
Variable Coefficient T-value P
BSIZE 0.21,40,623 3.12*** 0.00
SBSIZE −0.43,02,993 −4.33*** 0.00
SBMEET 0.10,73,845 2.91*** 0.00
LTASSET −0.05,80,726 −0.28 0.783
Cons 3.1,53,489 2.71 0.009
R2 0.3099
Adjusted R2 0.2472
P-Chi 0.00
***Significance at 1%