Previous studies have compared the efficiency of Islamic banks with their conventional counterparts using a common efficiency frontier and ignoring risks, in spite of the two bank groups operating under different technological, market and institutional conditions. We overcome this issue by estimating efficiency using the stochastic meta-frontier model for a large international sample, and show that compared to conventional banks, Islamic banks are 4 percentage points more cost efficient, but 17 percentage points less profit efficient on a risk-adjusted basis. For both bank types, higher bank risk reduces cost efficiency but increases profit efficiency, implying that risks contribute more to generating revenues than inflating costs. Having a stronger Shariah supervisory board is conducive to improving Islamic banks' profit efficiency. Our findings are robust to accounting for potential endogeneity in the governance-efficiency relationship.

We examine the link between board gender diversity and managerial ability to transform corporate resources into revenue. Drawing on a sample of U.S firms during the period 2001–2016, we find a positive and economically meaningful association between female directors on boards and managerial ability, particularly when female directors are in monitoring roles on the board. The documented effect is stronger when using a tenure weighted measure of female representation on boards; and more pronounced for firms that have three or more women on the board of directors, in line with the critical mass hypothesis. We uncover that critical mass of female directors in monitoring roles is particularly conducive to enhancing managerial ability. Our channel analysis tests further reveal a distinctive tendency of firms with more gender diverse boards to shape the human capital of the firm by promoting managers with more generalist managerial skills. We find consistent results when we employ propensity score matching estimates and difference-in-differences using sudden deaths of female directors as a potential shock to address endogeneity concerns. We discuss implications for theory and policy.