The effects of Shariah board composition on Islamic Equity Indices’ performance,

Based on a sample of 54 Islamic indices over the period 2007–2014, we investigate the effect that Shariah board members’ educational background has on Islamic indices’ risk and return characteristics via the screening criteria. Using a capital asset pricing model benchmark analysis, we assess the sensitivity of Islamic indices to their conventional peers in terms of beta and derive a measure of return (Jensen’s alpha). First, we observe that the higher the number of members in common among the boards, the higher the risk–return profile of Islamic indices. Second, commonalities among board members lead to standardization of the screening criteria among providers and to similar performance of Islamic indices. Third, we show that different betas across providers depend on the screening criteria, while the economic educational background of board members affects performance in terms of Jensen’s alpha. Our study aims to contribute to the governance literature related to board composition and its importance as a possible driver of performance. In addition, given the impressive growth that Islamic finance has experienced through the last decade, this topic is of great interest to the asset management industry.