The influence of corporate governance and Shariah governance on insolvency risk: Evidence from developing market

Abstract

The goal of the study was to determine how corporate governance and Sharia governance affected the risk of insolvency in banks located in Iraq and the Gulf Cooperation Countries (GCC). The moderating influence of foreign ownership in banks on the association between the two levels of governance and bankruptcy risk was also examined in this study. For the years 2012–2021, the study covered 70 banks listed in Iraq and the seven GCC countries. Three distinct regression models were utilized in the study: ordinary least squares, variable effect model, and fixed effect model. To select the best model and discover the analysis's findings, a comparison of the models was done. The findings showed that insolvency risk and corporate governance had a negative association. While there was no effect of Sharia governance on insolvency risks. The study found that foreign ownership also plays a major role in the interaction. The study provides a valuable unified indicator through which corporate governance and Sharia law can be measured in the GCC and Iraq. It gives decision-makers an accurate view of the risks of insolvency and ways to control them.