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Book part
Publication date: 1 March 2021

Siti Khomsatun, Hilda Rossieta, Fitriany Fitriany and Mustafa Edwin Nasution

The unique characteristic of Islamic bank leads in governance and disclosure. Using stakeholder, signaling, and market discipline theory, governance and adequate…

Abstract

The unique characteristic of Islamic bank leads in governance and disclosure. Using stakeholder, signaling, and market discipline theory, governance and adequate disclosure may increase bank soundness. This study aims to investigate the relationship of sharia disclosure and Sharia Supervisory Board in influencing Islamic bank soundness in the different regulatory framework of the country. Using purposive sampling, the research covered 84 Islamic banks in 16 countries during the period 2013–2015 with lag data of Islamic bank soundness. The result shows sharia disclosure influences on Islamic bank soundness for management efficiency, capital adequacy ratio, asset quality, and liquidity. The results also show that sharia disclosure mediates the indirect effect of SSB on Islamic bank soundness. The regulatory framework (sharia accounting standard and SSB regulation) shows moderating effect of regulation framework proved on the association of sharia disclosure with management efficiency, capital, and liquidity. The effect is indirectly depending on the regulatory framework for proxy management efficiency, capital, and liquidity. The implication of the research suggests that sharia disclosure could increase the market discipline mechanism of Islamic bank stream. The Islamic bank can increase the transparency using sharia disclosure as a branding for increasing public trust, even though in the deficient Islamic bank regulation countries.

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Recent Developments in Asian Economics International Symposia in Economic Theory and Econometrics
Type: Book
ISBN: 978-1-83867-359-8

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Article
Publication date: 23 August 2013

Hichem Hamza

The Sharia governance is topic that has generated much interest in the literature of Islamic banking industry. The Sharia supervision plays an essential role in the…

Abstract

Purpose

The Sharia governance is topic that has generated much interest in the literature of Islamic banking industry. The Sharia supervision plays an essential role in the governance of Islamic banks. The Sharia Board (SB) which is peculiar to Islamic banks is considered as the principal component of the Sharia governance framework. The purpose of this paper is to examines the link between Sharia compliance, the form of Sharia supervision and the effectiveness of Sharia governance.

Design/methodology/approach

This paper compares two model of Sharia governance framework, the first is the decentralized model in the Gulf Cooperation Council (GCC) and the second is the centralized model in Malaysia.

Findings

The independence of the SB in their mission of supervision and the consistency of Sharia ruling are the principal components of an efficient Sharia governance structure. Centralized Sharia governance system, basically in Malaysia, seems to be beneficial to the industry in term of effectiveness and credibility of the Islamic banks.

Research limitations/implications

The research focuses exclusively on the qualitative analysis about the SB and Sharia governance in Islamic countries.

Practical implications

The model of centralization is able to strengthen the position and the independence of SB and can better examine the subjects of divergences between the whole of the SB in order to promote, in the long term, the consistency of Fatwas and interpretations between banks and regions.

Originality/value

To the best of our knowledge few studies have examined this subject in a comparative discussion between MENA and Southeast Asia region. This paper contributes to the literature on Sharia governance by considering the difference between these two regions in term of supervision model of Sharia rules and principles and its application in Islamic banking.

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International Journal of Islamic and Middle Eastern Finance and Management, vol. 6 no. 3
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 19 October 2020

Ibtissem Baklouti

This paper is an empirical study of the effect of the characteristics of the Sharia supervisory board (SSB) on the financial performance of Islamic banks.

Abstract

Purpose

This paper is an empirical study of the effect of the characteristics of the Sharia supervisory board (SSB) on the financial performance of Islamic banks.

Design/methodology/approach

Using 42 Middle East and North Africa (MENA) Islamic banks outside the Gulf Cooperation Council (GCC) and non-Islamic countries during the 2011/2018 period, a random-effects generalized lease square method for the regression analyzes is applied.

Findings

The obtained results show that the characteristics of the SSB affect the financial performance of Islamic banks. The results also affirm that a large-sized board of directors and the number of SSB meetings improve banking performance while the cross-mandate seems to destroy it. On the other hand, the SSB members’ competence and reputation and the proportion of women sitting in SSB have no impact on the financial performance of Islamic banks.

Research limitations/implications

This paper gives a comprehensive literature survey on the effect of the characteristics of the SSB on the financial performance of Islamic banks.

Practical implications

This study offers insights into the practitioner and Islamic banking regulators interested in enhancing the legitimacy of corporate governance in Islamic financial institutions.

Originality/value

This paper is among the few studies that investigate the effect of the characteristics of SSB on the financial performance of Islamic banks in particular in Islamic banks in the MENA region outside the GCC and in non-Islamic countries.

Details

Journal of Islamic Marketing, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1759-0833

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Book part
Publication date: 8 September 2017

Sherif El-Halaby, Khaled Hussainey and Abdullah Al-Maghzom

The authors measure the impact of culture on Sharia; Social and Financial Disclosure (SSFD) of Islamic Banks (IBs) around the world.Content analysis is used to measure…

Abstract

The authors measure the impact of culture on Sharia; Social and Financial Disclosure (SSFD) of Islamic Banks (IBs) around the world.

Content analysis is used to measure levels of disclosure for a sample of 136 IBs of 25 countries for years 2013 and 2014. Different cultural measures are used. These include secrecy/transparency as suggested by Gray (1988) and Hofstede (1980, 1983, 2001, 2010)’s culture dimensions which include: Power Distance; Individualism; Masculinity; Uncertainty Avoidance; Long-Term Ordination and Indulgence. Ordinary least square (OLS) regression is used to test the research hypotheses.

After controlling bank-specific, corporate governance and country characteristics, the authors found that Hofstede’s culture dimensions have a significant impact on SSFD. They also found that Gray's transparency dimension positively influence levels of sharia, social and aggregated disclosure. Therefore, they conclude that culture influences levels of disclosure in IBs.

This study has policy implications for managers and regulators of Islamic banking industry.

This study is the first to use both Gray and Hofstede models in the context of IBs around the world. It also the first to explore the impact of culture on three different disclosure levels for IBs.

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Advances in Accounting Behavioral Research
Type: Book
ISBN: 978-1-78714-527-6

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Article
Publication date: 5 September 2016

Hounaida Mersni and Hakim Ben Othman

The purpose of this paper is to examine whether corporate governance mechanisms affect the reporting of loan loss provisions by managers in Islamic banks in the Middle East region.

Abstract

Purpose

The purpose of this paper is to examine whether corporate governance mechanisms affect the reporting of loan loss provisions by managers in Islamic banks in the Middle East region.

Design/methodology/approach

This empirical study uses balanced panel data from 20 Islamic banks, from seven Middle East countries for the period 2007 to 2011. The regression model is estimated using random effects specifications.

Findings

The empirical results show that discretionary loan loss provisions (DLLP) are negatively related to board size and the existence of an audit committee. Results also report a positive relationship between sharia board size and DLLP. This indicates that small sharia supervisory boards are more effective than larger ones, which could be due to the higher costs and negative effects of large groups on decision-making. Results also highlight that the existence of scholars with accounting knowledge sitting on the sharia board reduces discretionary behavior. Additional results provide evidence that an external sharia audit committee is also found to reduce discretion in Islamic banks. The conclusions are found to be robust to endogeneity issues and potentially omitted variables.

Practical implications

The findings are potentially useful for regulators and shareholders. Regulators could use the findings to focus on corporate governance mechanisms that restrain earnings management practices in Islamic banks and implement regulations to strengthen them. Additionally, this study gives shareholders further insight which enables them to better monitor the actions of managers and thus increase their control over their investments.

Originality/value

This study provides two contributions to the literature on Islamic banking. First, to the authors’ knowledge, this study is only the second piece of research focused on the impact of corporate governance on earnings management in Islamic banks. Second, the authors have examined the effect of some new corporate governance mechanisms that have not been studied previously in the research literature.

Details

Journal of Islamic Accounting and Business Research, vol. 7 no. 4
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 29 January 2020

Rahma Wijayanti, Vera Diyanty and Sugiyarti Fatma Laela

This study aims to provide empirical evidence on the contingency factors that affect the implementation of education strategies and the impact of education strategy misfit…

Abstract

Purpose

This study aims to provide empirical evidence on the contingency factors that affect the implementation of education strategies and the impact of education strategy misfit on the performance and effectiveness of the board’s moderating role on the misfit level and performance of Islamic banks.

Design/methodology/approach

This research is a quantitative study with pooled ordinary least square panel data during the years 2007-2014 from all Indonesian Islamic commercial banks. Islamic bank performances are measured by the level of profitability and sharia financial performance. Board effectiveness is analysed by measuring the effectiveness of both the board of commissioners (BoC) and the sharia supervisory board (SSB).

Findings

This study proves that organisational competent qualities and chief executive officer tenure are the contingency factors that affect the implementation of the education strategy. This study’s results indicate that the effectiveness of both the BoC and SSB has a positive impact on the bank’s profitability and sharia financial performance. The results also show that misfit has a negative effect on sharia financial performance and that board effectiveness is proved to reduce the negative impact of a misfit on sharia financial performance. However, there is no strong evidence that board effectiveness reduces the negative impact of a misfit on profitability.

Originality/value

This study emphasises the importance of enhancing the competence and innovation of organisations in the implementation of education strategy and the need for synergy and increased capabilities among board members to achieve well-established Islamic bank performance.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 3
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 8 May 2018

Muhammad Tariq Majeed and Abida Zainab

Islamic banks provide an alternative financial system based on Sharia’h (Islamic law). However, critics argue that operation at Islamic banks is violating Sharia’h

Abstract

Purpose

Islamic banks provide an alternative financial system based on Sharia’h (Islamic law). However, critics argue that operation at Islamic banks is violating Sharia’h particularly in terms of provision of interest free services, risk sharing and legal contract. The purpose of this paper is to empirically evaluate the Sharia’h practice at Islamic banks in Pakistan by considering some basic principles of Sharia’h.

Design/methodology/approach

Primary data are collected from 63 branches of Islamic banks in Pakistan. Questionnaire is used as an instrument. The study uses structural equation modeling that includes confirmatory factor analysis and regression analysis. Data are codified and analyzed using SPSS and Amos.

Findings

This study finds that Islamic banks are providing interest free services, ensuring that transactions and contracts offered by Islamic banks are legal and offering conflict-free environment to customers. In contrast, estimated results expose that Islamic banks are not sharing risk and Sharia’h supervisory board is not performing its role perfectly. Similarly, it is found that organization and distribution of zakat and qard-ul-hassan are weak at Islamic banks.

Research limitations/implications

Data are collected from Islamabad federal capital of Pakistan that hold just 5 per cent share of Islamic banking industry. This small share may not provide true picture of Islamic banking sector.

Practical implications

To ensure risk sharing, Islamic banking industry must consider the development of new modes of financing and innovation of more products based on Sharia’h. State Bank of Pakistan should ensure separate regulatory framework that enable Islamic banks to provide qard-ul-hassan, organize and allocate zakat.

Originality/value

This paper discusses the perception of bankers, who are actually the executors, about Shariah’s practices at Islamic banks in Pakistan. There are not many discussions on this topic that could be found, and hence this could be considered as a significant contribution by this paper to the existing literature of Islamic finance.

Details

Journal of Islamic Accounting and Business Research, vol. 9 no. 3
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 5 December 2020

Gökberk Can

Sharia compliance states that the compliant company operates not only under regulations but also to the restrictions and permission of Islam. This study aims to reveal…

Abstract

Purpose

Sharia compliance states that the compliant company operates not only under regulations but also to the restrictions and permission of Islam. This study aims to reveal whether Sharia compliance enhances the financial reporting quality.

Design/methodology/approach

The sample is constructed from 15 Muslim majority countries, 2,300 companies for the periods between 2005 and 2017 with 23,810 firm*year observations. Financial reporting quality is measured with discretionary accruals and audit aggressiveness. Discretionary accruals is the absolute of Kothari, Leone and Wasley’s (2005) “performance matched discretionary accruals model.” Audit aggressiveness is calculated with Gul, Wu and Yang’s (2013) model.

Findings

This study reveals the behavioral differences in financial reporting quality between Sharia-compliant and non-compliant companies. According to the analyzes, Sharia compliance increases the financial reporting quality by decreasing the discretionary accruals and audit aggressiveness. This result is supported by the robustness tests.

Practical implications

Sharia compliance is not limited to business activity, financial restrictions and supervisory board for Sharia-compliant companies. It also enhances the companies’ financial reporting quality. Robustness analysis also showed that the International Financial Reporting Standards (IFRS) increases the financial reporting quality by reducing discretionary accruals and audit aggressiveness.

Originality/value

This study contributes to the accounting literature by providing an insight on the use of Islamic financial instruments. The empirical results also show that the use of IFRS and Islamic financial instruments decreases the discretionary accruals and audit aggressiveness.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 14 no. 1
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 18 April 2016

Sherif El-Halaby and Khaled Hussainey

The authors explore the level and determinants of compliance with Accounting and Auditing Organization for Islamic Financial Institution’s (AAOIFI) financial and…

Abstract

Purpose

The authors explore the level and determinants of compliance with Accounting and Auditing Organization for Islamic Financial Institution’s (AAOIFI) financial and governance standards by Islamic banks (IBs).

Design/methodology/approach

The sample consists of 43 IBs across eight countries. The authors use ordinary least squares regression analyses to examine the impact of bank-specific characteristics and corporate governance (CG) mechanisms concerned with Board of Directors (BOD) and Sharia Supervisory Board (SSB) on the levels of compliance with AAOIFI standards.

Findings

The paper finds that the average compliance level based on AAOIFI standards concerning the SSB is 68 per cent; corporate social responsibility (CSR) is 27 per cent; and presentation of financial statements (FSs) is 73 per cent. The aggregate disclosure based on the three indices is 56 per cent. The analysis also shows that size, existing Sharia-auditing department, age and CG of SSB are the main determinants of compliance levels.

Originality/value

The determinants of compliance with AAOIFI standards for IBs around the world have not been explored before, and therefore, this paper is the first of its kind to this issue.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 9 no. 1
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 2 September 2019

Peni Nugraheni and Erlinda Nur Khasanah

The purpose of this study is to discuss the extent to which Indonesian Islamic banks (IBs) disclose corporate social responsibility (CSR) according to the Accounting and…

Abstract

Purpose

The purpose of this study is to discuss the extent to which Indonesian Islamic banks (IBs) disclose corporate social responsibility (CSR) according to the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) index. It also empirically examines the determinants of CSR disclosure in Indonesian IBs, based on disclosure from AAOIFI index, which is based on Islamic principles.

Design/methodology/approach

The determinant used in this paper is the corporate governance (CG) mechanism, which focuses on the board of commissioners (BOC) and Sharia Supervisory Board (SSB) and their characteristics. The paper uses multiple regression analysis to examine the influence of these variables on CSR.

Findings

The results indicate that the level of CSR disclosure of IBs measured by the AAOIFI index continues to be low. The statistical results reveal that CSR disclosure has an insignificant relationship with BOC size and SSB qualifications, while the other results show a negative association between the composition of independent BOCs and CSR disclosure, and the frequency of BOC and SSB meeting has a positive effect on this.

Research limitations/implications

The study focuses on Indonesian IBs. The variables of the CG mechanism are limited to the BOC and SSB, while the BOC exists only in countries that adopt two-tier boards.

Practical implications

IBs should provide a wider range of information to be disclosed. The government should establish specific items that need to be disclosed by IBs, considering there are no specific CSR disclosure regulations for IBs in Indonesia.

Originality/value

This study uses the AAOIFI index, which may be a suitable measure of CSR in IBs. The study also analyzes why certain items in the index have a high disclosure level and others do not.

Details

Journal of Financial Reporting and Accounting, vol. 17 no. 3
Type: Research Article
ISSN: 1985-2517

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