Cost efficiency and board composition under different takaful insurance business models

H. Abdul Kader, M. Adams, P. Hardwick, W. J. Kwon

Research output: Contribution to journalArticle

16 Citations (Scopus)
174 Downloads (Pure)

Abstract

This study examines the link between cost efficiency and board composition in non-life takaful insurance firms operating in 17 Islamic countries using panel data for 2004-2007. Nonparametric data envelopment analysis (DEA) is used to compute cost efficiency scores and a second-stage logit transformation regression model is then employed to test the influence of corporate characteristics on these efficiencies. We find that average levels of cost efficiency in takaful insurance markets mirror the efficiency in developed non-life insurance markets. The relative influence of board composition, such as the proportion of non-executive directors on the board, on the cost efficiency of takaful insurers depends on its interaction with other firm-specific characteristics such as board size. Hence, the effect of corporate governance systems on the cost efficiency of takaful insurers can be complicated by various firm-specific factors. Our results could have important commercial and policy implications.
Original languageEnglish
Pages (from-to)60-70
Number of pages11
JournalInternational Review of Financial Analysis
Volume32
DOIs
Publication statusPublished - Mar 2014

Keywords

  • board composition
  • corporate governance
  • cost efficiency
  • data envelopment analysis
  • nonparametric analysis
  • takaful insurance

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