Abstract
Despite being exceptionally regulated financial institutions, risk management practices (RMPs) of Islamic banks (IBs) have always remained under the limelight due to their impact on financial performance (FP) and the influence of digital technologies (DT). This study aims to investigate the impact of RMPs on FP through the mediating effect of DT. To analyze the linkage between these constructs, we created an index for RMPs, five unique proxies [mobile (MB_DEA), big data (BD_DEA), Internet of Things (IoT), cloud computing (CC_DEA), and social media (SM_DEA)] of DT, and Tobin’s Q as a proxy of FP and operationalized the theory of contingency. Between 2009 and 2020, the data was collected from Indonesian and Malaysian IBs and analyzed using the two-step generalized method of movement (GMM) technique. The empirical findings represent that RMPs and DT significantly positively affect FP. Simultaneously, RMPs have a significant positive effect on two proxies of DT (MB_DEA and SM_DEA) and an insignificant positive effect on the remaining three proxies of DT (BD_DEA, IoT_DEA, and CC_DEA). Simultaneously, DT has a mediator plays a significant mediating role between RMPs and FP. This study contributes to systematizing the RMPs of IBs by integrating digital technologies, which will eventually increase their financial portfolios.