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Article
Publication date: 11 March 2020

Mohd Fikri Sofi and M.H. Yahya

This paper aims to examine the effect of Shariah Advisory Panel (SAP) on both the level of agency cost and fund performance against conventional corporate governance

Abstract

Purpose

This paper aims to examine the effect of Shariah Advisory Panel (SAP) on both the level of agency cost and fund performance against conventional corporate governance, within corporate and Shariah governance settings, between Shariah and conventional mutual fund (CMF), in an emerging economy of Malaysia during the period 2008-2015.

Design/methodology/approach

Panel data regression is appropriately used within corporate governance research because of empirical issues of unobserved heterogeneity effects to avoid spurious evidence. The secondary data of 172 CMFs and 80 Shariah mutual funds are gathered hand-collected from annual reports and master prospectuses for the purpose of analysis between the period 2008 and 2015, generating 2,016 fund-year observations.

Findings

SAP is found to have a positive effect on agency costs. Consequently, it leads to empirical evidence that substantiates a negative and marginally significant association with fund performance when designated by accounting measure. Thus, the Shariah monitoring proxy is not a good mechanism for controlling agency costs inconsistent with performance maximizing (agency cost minimizing) outcomes.

Research limitations/implications

The unique data set of mutual funds used in this research may restrict the generalization of the findings unless mentioned and explained specifically the data characteristics. The single proxy for Shariah monitoring could be better off by having a list of different measures.

Practical implications

The paper highlights and suggests a consistent improvement in regulation that could be performed by policymakers pertaining to the non-trivial additional cost of implying Shariah governance.

Originality/value

This paper provides empirical evidence of the SAP effects from the view of a more complex monitoring structure in consequence of having an additional layer of governance, devoting on the trade-off between benefit and cost to shareholders.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 5
Type: Research Article
ISSN: 1759-0817

Keywords

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Article
Publication date: 20 January 2020

Amiratul Nadiah Hasan, Aisyah Abdul-Rahman and Zaleha Yazid

The purpose of this paper is to explore the Shariah governance practices of Islamic fund management companies (IFMCs) in Malaysia, with the principal goal of reviewing the…

Abstract

Purpose

The purpose of this paper is to explore the Shariah governance practices of Islamic fund management companies (IFMCs) in Malaysia, with the principal goal of reviewing the need for a comprehensive Shariah governance framework for the Islamic fund management industry.

Design/methodology/approach

The study was conducted using a qualitative approach via 14 semi-structured interviews with three companies (i.e. Company A, Company B and Company C) involving face-to-face interviews, telephone interviews and emails. Data from the interviews were recorded and later analysed using content analysis.

Findings

The study finds that Shariah governance processes among the IFMC examined are well-managed; and the current regulations issued by the regulators are sufficient to ensure the Shariah compliance of Islamic fund management industry. In spite of the absence of a comprehensive Shariah governance framework for the industry, most Shariah functions (i.e. Shariah risk management, Shariah review and Shariah audit) are performed by the parent company, except for Shariah research. Nevertheless, Shariah research is not an important function in Islamic fund management because the investment instruments are generally selected from a predetermined list of Shariah-compliant investment options.

Practical implications

The study offers an overview of Shariah governance practices in the Islamic fund management industry to policymakers and practitioners for the future development of Shariah governance practices among IFMC.

Originality/value

This is the first paper to study Shariah governance practices in the Islamic fund management industry in Malaysia.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 2
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 25 November 2019

Rohaida Basiruddin and Habib Ahmed

This study aims to investigate the relationship between corporate governance and Shariah non-compliant risk (SNCR) that is unique for Islamic banks. The study examines the…

Abstract

Purpose

This study aims to investigate the relationship between corporate governance and Shariah non-compliant risk (SNCR) that is unique for Islamic banks. The study examines the roles of Shariah committee along with the board of directors in mitigating SNCR.

Design/methodology/approach

The paper empirically investigates the implications of characteristics of board of directors and Shariah committee on the SNCR by using a sample of 29 full-fledge Islamic banks from Malaysia and Indonesia over the period 2007-2017. All data is hand collected from the Islamic banks' annual reports with the exception of country-level data collected from the World Bank database.

Findings

The results show that banks with a smaller board size and higher proportion of independent board members are likely to have lower SNCR. The findings also indicate that the financial expertise and higher frequency of Shariah committee meetings reduces the SNCR. Collectively, the analysis shows that banks with strong corporate governance environments reduce SNCR.

Practical implications

The findings of the study shed light on the relationship between corporate governance practice, Shariah committee characteristics and SNCR. The results can be used by different stakeholders such as policymakers, boards of directors and senior management of Islamic banks to mitigate SNCR.

Originality/value

This study extends the literature on corporate governance and risk-taking by including additional dimensions of governance and risk type. The corporate governance mechanism at the board level is complemented by including the Shariah committee characteristics and SNCR which is relevant to Islamic financial institutions is examined.

Details

Corporate Governance: The International Journal of Business in Society, vol. 20 no. 2
Type: Research Article
ISSN: 1472-0701

Keywords

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Article
Publication date: 28 October 2013

Rihab Grassa

The aim of this paper is to review the different steps of development of Shariah governance system and to discuss the different practices of Shariah governance in Islamic…

Abstract

Purpose

The aim of this paper is to review the different steps of development of Shariah governance system and to discuss the different practices of Shariah governance in Islamic financial institutions internationally.

Design/methodology/approach

The paper has a particular focus on the other contributions of relevant literature and existing laws and regulations for Islamic financial institutions which provides a reflective synthesis on practical work of Shariah governance system across different jurisdictions.

Findings

The main attention of this paper is Islamic financial institutions and a key issue arising is that the typical structure, functions, duties and responsibilities are different from country to country.

Practical implications

The paper put forward various suggestions to the regulatory authorities and to the Islamic Financial Services Board to enhance the Shariah governance system and to standardize the different practices of Shariah governance worldwide.

Originality/value

The originality and the value of the paper lie in its critical review of current Shariah governance practices worldwide. As well, some key issues pertaining to Shariah governance in Islamic financial institutions are addressed to encourage further investigation by academics and practitioners in the field.

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Article
Publication date: 4 March 2019

Nazrul Hazizi Noordin and Salina Kassim

The purpose of this paper is to investigate the empirical linkage between the composition of Shariah Committee and the extent of Shariah governance disclosure in 16…

Abstract

Purpose

The purpose of this paper is to investigate the empirical linkage between the composition of Shariah Committee and the extent of Shariah governance disclosure in 16 licensed Islamic banks in Malaysia.

Design/methodology/approach

This paper adopted a multiple regression analysis to test the association between the composition of Shariah Committee and the extent of Shariah governance disclosure. A disclosure index was developed to measure the extent of Shariah governance disclosure made by the Islamic banks. Whereas to measure the extent of Shariah governance disclosure, this study used content analysis as a method of coding qualitative information in the annual reports.

Findings

Using 2009 data, the study found a significant association between different compositions of the Shariah Committee in the Malaysian Islamic banks and their Shariah governance disclosure level before the introduction of the Shariah Governance Framework (SGF). However, because of less variation in the composition of Shariah Committee after the introduction of SGF 2010, a weak linkage was found between the composition of Shariah Committee and the extent of Shariah disclosure of Malaysian Islamic banks in 2013.

Research limitations/implications

Findings of this study offer several implications for further improvements of the Malaysian Islamic banking sector in particular, and other Islamic banks globally. As better composition of Shariah Committee in terms of its size, academic background and other relevant expertise would result in effective monitoring system leading to better practices of Shariah disclosure, this finding highlights the relevance and important role of the Shariah Committee in improving voluntary Shariah disclosure level of the Islamic banks. This finding suggests that ample focus has to be channelled in strengthening the composition of Shariah Committee in crafting future development of SGF in Malaysia. It is also suggested that Islamic banks need to give priority in providing more education and training in various areas of expertise to their Shariah Committee members that would result in greater confidence of investors, stakeholders and the society on the information disclosed by the banks.

Originality/value

The novelty of this paper lies in highlighting the importance of different composition of Shariah Committee in determining the extent of voluntary disclosure made on Shariah matters by the Islamic banks.

Details

Journal of Islamic Accounting and Business Research, vol. 10 no. 2
Type: Research Article
ISSN: 1759-0817

Keywords

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Article
Publication date: 11 May 2015

Rihab Grassa

This paper aims to discuss the different practices and regulatory frameworks of Shariah supervision in Islamic Financial Institutions (IFIs) across Organisation of Islamic…

Abstract

Purpose

This paper aims to discuss the different practices and regulatory frameworks of Shariah supervision in Islamic Financial Institutions (IFIs) across Organisation of Islamic Cooperation (OIC) member states and to identify the gaps in current Shariah supervisory practices. Parallel with the rapid growth of Islamic finance worldwide, corporate governance has received a considerable amount of attention in Islamic finance. Shariah is a unique characteristic of Islamic finance. That is why the need for a good and efficient Shariah governance system for IFIs is considered to be a crucial requirement to ensure the development and the stability of the Islamic finance industry.

Design/methodology/approach

The paper is based on critical review of current laws and regulations for IFIs; this provides a reflective synthesis on the practical work of the Shariah supervisory system across the 25 different OIC member states.

Findings

The paper reveals several findings. First, the authors observe a weak and poor Shariah supervisory system in most OIC member states. Furthermore, the authors detect various gaps in the current Shariah supervisory practices. Most of these shortfalls are linked to the current regulatory frameworks: the roles and the responsibilities of the national Shariah authority, and the institutional Shariah board’s duties and attributes.

Originality/value

This paper’s originality and value lies in its critical review of current Shariah supervisory practices across 25 OIC member states. Also, the paper puts forward various suggestions to the regulatory authorities and to the Islamic Financial Services Board to enhance the Shariah governance system and to standardize the different practices of Shariah governance worldwide.

Details

Journal of Financial Regulation and Compliance, vol. 23 no. 2
Type: Research Article
ISSN: 1358-1988

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Article
Publication date: 12 August 2014

Rihab Grassa and Hamadi Matoussi

This paper aims to understand the current governance practices and governance structure of Islamic banks (IBs) in Gulf Cooperation Council (GCC) and Southeast Asia…

Abstract

Purpose

This paper aims to understand the current governance practices and governance structure of Islamic banks (IBs) in Gulf Cooperation Council (GCC) and Southeast Asia countries with the purpose of providing relevant information in guiding the future development of the governance system for IBs. As well, the paper discusses and compares the state of the governance system in GCC countries (Kuwait, Bahrain, United Arab Emirates, Qatar and Saudi Arabia) and Southeast Asia countries (Malaysia and Indonesia).

Design/methodology/approach

The study utilizes descriptive analysis approach in extracting and analyzing data collected for 83 IBs observed for the period 2002-2011. The authors test for differences in means and medians of corporate governance attributes between a sample of IBs in GCC countries and another one for Southeast Asia countries. They use selected variables of corporate governance of different governance structures, namely, the ownership structure, the board of directors, the Shariah board and the CEO attributes.

Findings

The paper findings argue that there are significant differences and divergence of corporate governance structure of IBs in GCC countries and those in Southeast Asia countries. This position acknowledges that there are shortcomings to the existing governance framework for IBs which needs further improvement and standardization.

Practical implications

The paper is a very useful source of information that may provide relevant guidelines in guiding the future development of corporate governance of IBs. As well, the paper provides relevant guidelines for improving regulations and laws covering the governance of IBs.

Originality/value

This paper provides fresh data and recent information on the actual corporate governance system in IBs in GCC and Southeast Asia countries. As well, the paper discusses a significant shortage in corporate governance literature of Islamic finance.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 7 no. 3
Type: Research Article
ISSN: 1753-8394

Keywords

Content available
Article
Publication date: 17 August 2021

Mariem Ben Abdallah and Slah Bahloul

This study aims at investigating the impact of the disclosure and the Shariah governance on the financial performance in MENASA (Middle East, North Africa and Southeast…

Abstract

Purpose

This study aims at investigating the impact of the disclosure and the Shariah governance on the financial performance in MENASA (Middle East, North Africa and Southeast Asia) Islamic banks.

Design/methodology/approach

We use the Generalized Least Squares (GLS) regression models to check the interdependence relationship between the disclosure, the Shariah governance and the financial performance of 47 Islamic banks (IBs) from ten countries operating in MENASA region. The sample period is from 2012 to 2019. In these regressions models, Return on Assets (ROA) and Return on Equity (ROE) are the dependent variables. The disclosure and the Shariah governance indicators are the independent factors. To measure the Shariah governance, we use the three sub-indices, which are the Board of Directors (BOD), the Audit Committee (AC) and the Shariah Supervisory Board (SSB). Size, Leverage and Age of the bank are used as control variables. We also used The Generalized Method of Moments (GMM) and the three-stage least squares (3SLS) estimations for robustness check.

Findings

Result shows a negative relationship between the disclosure and the two performance measures in IBs. Furthermore, as far as the governance indicators are concerned, we found that the BOD and AC, as well as the BOD and SSB, have a positive and significant impact on the ROA and ROE, respectively. This reveals that good governance had a significant association with higher performance in MENASA IBs.

Originality/value

The paper considers both IBs that adopt mandatory as well as voluntary AAOIFI standards and the GLS method to investigate the impact of the AAOIFI disclosure and the Shariah governance on ROA and ROE. Also, it uses the GMM and the 3SLS estimations for robustness check. It is relevant for researchers, policymakers and stakeholders concerned with IBs' performance.

Details

Asian Journal of Economics and Banking, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2615-9821

Keywords

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Article
Publication date: 24 August 2012

Sulaiman Abdullah Saif Alnasser and Joriah Muhammed

The purpose of this paper is to draw an analytical review on corporate governance from the Islamic perspective, addressing the importance of understanding governance for…

Abstract

Purpose

The purpose of this paper is to draw an analytical review on corporate governance from the Islamic perspective, addressing the importance of understanding governance for Islamic institutions.

Design/methodology/approach

The study follows a browsing method that takes into consideration the difference between normal corporate governance in conventional banking and comparing that to Islamic banking.

Findings

It was found that it is very important to take into consideration the corporate governance in Islamic banks because it might help to draw the right image about the organization. In particular, how the Shariah Supervisory board functions and how it could be linked to the Islamic banking process.

Originality/value

This paper is one of few papers that highlight the importance of studying corporate governance for Islamic banks. The paper is of value in describing governance in Islamic institutions and how there are many issues under the investigation process, especially issues related to the Shariah Supervisory board and its functionality.

Details

Humanomics, vol. 28 no. 3
Type: Research Article
ISSN: 0828-8666

Keywords

Content available
Article
Publication date: 4 June 2021

Md. Kausar Alam, Fakir Tajul Islam and Mahfuza Kamal Runy

The purpose of this paper is to explore the question “Why is Shariah Governance Framework (SGF) important for Islamic banks?”

Abstract

Purpose

The purpose of this paper is to explore the question “Why is Shariah Governance Framework (SGF) important for Islamic banks?”

Design/methodology/approach

A semi-structured face-to-face personal interview is used to accomplish the research objectives. This study has collected data from the concerned bodies related to Shariah Governance (SG) from the central bank and Islamic banks of Bangladesh.

Findings

This study states SG as a process of confirming Shariah compliance in the overall functions of the Islamic banks, while Shariah denotes some rules, regulations, guidelines, objectives and directions to enhance accurate functions and activities, which are solely based on Shariah principles. SGF is important for Islamic banks to implement Shariah principles, confirm Shariah compliance and monitor the functions of the banks. Besides, it is needed for a well, efficient, effective, profitable business and higher performance and, finally, to eliminate the confusion among the management, executives, conventional bankers and banks.

Research limitations/implications

This study significantly contributes to the national and global regulatory bodies by providing evidence that why do Islamic banks and financial institutions require a sound SGF. It is recommended that there should be a sound and robust SGF to protect and fulfill the interest, expectations and demands of different stakeholders, which can easily draw their attention, intention and interest.

Originality/value

This is the first research that extends the literature of Islamic banking and SG by highlighting the importance of SGF. This study claims that to be a complete Islamic bank as well as protecting the unique identity from the general banks and corporate governance system, SG manual is required.

Details

Asian Journal of Economics and Banking, vol. 5 no. 2
Type: Research Article
ISSN: 2615-9821

Keywords

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