Kutubi SS, Ahmed K, Khan H.
Bank Performance and Risk-Taking–Does Directors’ Busyness Matter?. Pacific-Basin Finance Journal [Internet]. 2018;50:184-199.
Bank Performance and Risk-Taking–Does Directors’ Busyness Matter?AbstractThis paper extends the literature on the association between bank performance and risk-taking with directors’ busyness in concentrated ownership and weak-external governance regimes. We argue that a quadratic model parsimoniously captures the tension between the ‘reputation hypothesis’ and ‘over-boarding hypothesis. We find a robust inverted u-shaped relationship between directors’ busyness and bank performance and a u-shaped relationship between directors’ busyness and bank risk-taking. Inside directors’ busyness has a significant effect on bank performance and risk-taking whereas independent directors’ busyness does not have a significant effect on performance and risk-taking. We calculate the optimal level of busyness where the reputation hypothesis dominates the over-boarding hypothesis at less than the optimal level of busyness and vice versa. This allows us to reconcile the mixed evidence in the literature on the relationship between busyness and performance/risk-taking.
Khan H.
Islamic economics and a third fundamental theorem of welfare economics. The World Economy [Internet]. 2018;21(3):723-737.
Islamic economics and a third fundamental theorem of welfare economicsAbstractThe discipline of economics started as a moral science but became detached from moral concerns over time to emulate natural science and to adopt positivism. Consequently, mainstream economics assumes people to be sordidly selfish. The teachings of Islam, however, promote social preferences where individuals should be other-regarding and have preferences over social outcomes. This paper replaces the selfish agent with a social agent and presents the results in a theorem referred to as the third fundamental theorem of welfare economics (TFTWE). The TFTWE states that “when the selfish agents are replaced with the social agents, market outcomes are Pareto optimal, equitable, and unique”. This is an important result which has widespread implications. We show that the TFTWE holds under conditions where the first two fundamental theorems of welfare economics fail and that a Walrasian equilibrium is more likely to exist when selfish preferences are non-convex. Unlike the popular convention, there is no equity-efficiency trade-off. In fact we point to the possibility of reversal in equity-efficiency trade-off.