Indian Journal of Finance

Open Access Open Access  Restricted Access Subscription Access

Could Risk, Corporate Governance, and Corporate Ethics Enhance Social Performance ? Evidence from Islamic Banks in Indonesia


Affiliations
1 Universitas Negeri Semarang, Indonesia
2 Economics and Business Faculty, Universitas Sebelas Maret, Indonesia

   Subscribe/Renew Journal


This study sought to demonstrate empirically the relationship between the level of banks’ risk (measured by leverage, capital adequacy ratio (CAR) ; financing deposit ratio (FDR) ; non-performing financing (NPF), corporate governance mechanism, profitability, and Ethics Disclosure Index (EDI)) on their social performance. The sample was 11 Islamic commercial banks in Indonesia. The data used were secondary data compiled from financial and annual reports for the period from 2009-2017. The data were then processed using multivariate analysis and structural equation modeling with WarpPLS tool. The study demonstrated that banks’ social distribution activities were not used to control risk. The role of the Sharia Supervisory Board (SSB) was not found to be effective in improving banks’ social performance. Meanwhile, the role of independent commissioners was able to increase the distribution of qardh al-hassan (interest free loans) and distribution of qardh (interest free financing). The level of profitability was only able to increase zakah expenditure (religious donations) and EDI was proven empirically to have a positive influence on the distribution of zakah funds and qardh financing. Islamic banks are required to demonstrate performance in terms of social concerns that is well aligned with the achievement of financial performance. The social activities that are a part of the performance of Islamic banks are concrete evidence of bank participation in improving people's welfare, reducing poverty, and caring for the environment.

Keywords

Risk, Corporate Governance, Environmental Performance, Zakah, Qard Financing.
User
Subscription Login to verify subscription
Notifications
Font Size

  • Amato, L. H., & Amato, C. H. (2007). The effects of firm size and industry on corporate giving. Journal of Business Ethics, 72(3), 229 – 241. https://doi.org/10.1007/s10551-006-9167-5

  • Aribi, Z. A., & Arun, T. (2015). Corporate social responsibility and Islamic financial institutions (IFIs) : Management perceptions from IFIs in Bahrain. Journal of Business Ethics, 129(4), 785–794. https://doi.org/10.1007/s10551-014-2132-9

  • Aribi, Z. A., Arun, T., & Gao, S. (2019). Accountability in Islamic financial institution : The role of the Shari’ah supervisory board reports. Journal of Islamic Accounting and Business Research, 10(1), 98 – 114. https://doi.org/10.1108/JIABR-10-2015-0049

  • Basah, M. Y. A., & Yusuf, M. M. (2013). Islamic bank and corporate social responsibility (CSR). European Journal of Business and Management, 5 (11),194–209. Retrieved from http://iiste.org/Journals/index.php/EJBM/article/view/5441

  • Bukair, A. A., & Abdul-Rahman, A. (2013). The influence of the Shariah supervision board on corporate social responsibility disclosure by Islamic Banks of Gulf Co-Operation Council Countries. Asian Journal of Business and Accounting, 6(2), 65–104.

  • Bukair, A. A., & Rahman, A. A. (2015). Bank performance and board of directors attributes by Islamic banks. International Journal of Islamic and Middle Eastern Finance and Management, 8(3), 291–309. https://doi.org/10.1108/IMEFM-10-2013-0111

  • Charumathi, B., & Ramesh, L. (2017). Do social and environmental disclosures increase firm value ? Evidence from Indian companies. Indian Journal of Finance,11(4),23–38 . https://doi.org/10.17010/ijf/2017/v11i4/112628

  • Chen, C. X., Lu, H., & Sougiannis, T. (2012). The agency problem, corporate governance, and the asymmetrical behavior of selling, general, and administrative costs. Contemporary Accounting Research, 29(1), 252–282. https://doi.org/10.1111/j.1911-3846.2011.01094.x

  • Cullinan, C. P., Mahoney, L. S., & Roush, P. (2016). Corporate social responsibility and shareholder support for corporate governance changes. Social Responsibility Journal, 12(4), 687–705. https://doi.org/10.1108/SRJ-10-2015-0161

  • Deswanto, R. B., & Siregar, S. V. (2018). The associations between environmental disclosures with financial performance, environmental performance, and firm value. Social Responsibility Journal, 14(1), 180 – 193. https://doi.org/10.1108/SRJ-01-2017-0005

  • El-Halaby, S., & Hussainey, K. (2015). The determinants of social accountability disclosure : Evidence from Islamic banks around the world. International Journal of Business, 20(3), 202 – 223.

  • El-Halaby, S., & Hussainey, K. (2016). Determinants of compliance with AAOIFI standards by Islamic banks. International Journal of Islamic and Middle Eastern Finance and Management, 9(1), 143 – 168. https://doi.org/10.1108/IMEFM-06-2015-0074

  • Farook, S., Kabir Hassan, M., & Lanis, R. (2011). Determinants of corporate social responsibility disclosure : The case of Islamic Banks. Journal of Islamic Accounting and Business Research, 2(2), 114 –141. https://doi.org/10.1108/17590811111170539

  • Fidiana. (2016). Performance measurement for Islamic bank and financial institution. Middle East Journal of Scientific Research, 24(10), 3288–3296. https://doi.org/10.5829/idosi.mejsr.2016.3288.3296

  • Fisher, J. (2004). Social responsibility and ethics : Clarifying the concepts. Journal of Business Ethics, 52, 391 – 400. https://doi.org/10.1007/s10551-004-2545-y

  • Fitriyah, & Oktaviana, U. K. (2013). Relevance of financial performance and good corporate governance determinant of sustainaibility corporate social responsibility disclosure in Islamic Bank in Indonesia. International Journal of Nusantara Islam, 1(2), 22 – 37.

  • Gambetta, N., García-Benau, M. A., & Zorio - Grima, A. (2016). Corporate social responsibility and bank risk profile : Evidence from Europe. Service Business, 11(3), 517–542. https://doi.org/10.1007/s11628-016-0318-1

  • Gupta, P., & Jaiswal, K. K. (2020). Analysis of financial performance of selected public and private sector banks. Indian Journal of Finance, 14(1), 45 – 57. https://doi.org/10.17010/ijf/2020/v14i1/149856

  • Ha, H. T. V., Van, V. T. T., & Hung, D. N. (2019). Impact of social reponsibility information disclosure on the financial performance of enterprises in Vietnam. Indian Journal of Finance, 13(1), 20 – 36. https://doi.org/10.17010/ijf/2019/v13i1/141017

  • Haniffa, R., & Hudaib, M. (2007). Exploring the ethical identity of Islamic banks via communication in annual reports. Journal of Business Ethics, 76(1), 97–116. https://doi.org/10.1007/s10551-006-9272-5

  • Harjoto, M. A., & Jo, H. (2011). Corporate governance and CSR nexus. Journal of Business Ethics, 100(1), 45 – 67. https://doi.org/10.1007/s10551-011-0772-6

  • Hassan, A., & Harahap, S. S. (2010). Exploring corporate social responsibility disclosure: The case of Islamic Banks. International Journal of Islamic and Middle Eastern Finance and Management, 3(3), 203 – 227. https://doi.org/10.1108/17538391011072417

  • Hassan, A., & Latiff, H. S. (2009). Corporate social responsibility of Islamic financial institutions and businesses: Optimizing charity value.Humanomics,25(3),177–188 . https://doi.org/10.1108/08288660910986900

  • Helfaya, A., Kotb, A., & Hanafi, R. (2016). Qur’anic ethics for environmental responsibility : Implications for business practice. Journal of Business Ethics, 150(4), 1105 – 1128. https://doi.org/10.1007/s10551016-3195-6

  • Jamali, D., Safieddine, A. M., & Rabbath, M. (2008). Corporate governance and corporate social responsibility synergies and interrelationships. Corporate Governance : An International Review, 16(5), 443 – 459. https://doi.org/10.1111/j.1467-8683.2008.00702.x

  • Jizi, M. I., Salama, A., Dixon, R., & Stratling, R. (2014). Corporate governance and corporate social responsibility disclosure: Evidence from the US banking sector. Journal of Business Ethics, 125(4), 601 – 615. https://doi.org/10.1007/s10551-013-1929-2

  • Kamla, R., & Rammal, H. G. (2013). Social reporting by Islamic banks: Does social justice matter ? Accounting, Auditing and Accountability Journal, 26(6), 911 – 945. https://doi.org/10.1108/AAAJ-03-2013-1268

  • Karim, K., Suh, S. H., & Tang, J. (2016). Do ethical firms create value ? Social Responsibility Journal, 12(1), 54 – 68. https://doi.org/10.1108/SRJ-09-2014-0127

  • Lin, Y., Cheng, M., Wong, K., & Cheung, H. J. (2018). Leverage measurement and multinational comparison of listed commercial banks in China. International Journal of Trade, Economics and Finance, 9(3), 131 – 134. https://doi.org/10.18178/ijtef.2018.9.3.602

  • Magnanelli, B. S., & Izzo, M. F. (2017). Corporate social performance and cost of debt : The relationship. Social Responsibility Journal, 13(2), 250 – 265. https://doi.org/10.1108/SRJ-06-2016-0103

  • Mallin, C., Farag, H., & Ow-Yong, K. (2014). Corporate social responsibility and financial performance in Islamic Banks. Journal of Economic Behavior and Organization,103 , S2 1 – S3 8 . https://doi.org/10.1016/j.jebo.2014.03.001

  • Mukhibad, H. (2018). The role of the Shariah Supervisory Council in the disclosure of Islamic social reporting. Jurnal Akuntansi Multiparadigma, 9(2), 299 – 311. https://doi.org/10.18202/jamal.2018.04.9018

  • Mukhibad, H., Kiswanto, & Jayanto, P. Y. (2017). An analysis on financial and social performance of Islamic banks in Indonesia. International Journal of Monetary Economics and Finance, 10(3/4), 295 – 308. https://doi.org/10.1504/IJMEF.2017.087479

  • Nguyen, P., & Nguyen, A. (2015). The effect of corporate social responsibility on firm risk. Social Responsibility Journal, 11(2), 324 – 339. https://doi.org/10.1108/SRJ-08-2013-0093

  • Otoritas Jasa Keuangan. (2018). Sharia banking statistics, September 2018. Retrieved from https://www.ojk.go.id/id/kanal/syariah/data-dan-statistik/statistik-perbankansyariah/Documents/Pages/Statistik-Perbankan-Syariah---September-2018/SPI September 2018.pdf

  • Perrini, F., Russo, A., Tencati, A., & Vurro, C. (2011). Deconstructing the relationship between corporate social and financial performance. Journal Business Ethics, 102, 59 – 76. https://doi.org/10.1007/s10551-0111194-1

  • Sadou, A., Alom, F., & Laluddin, H. (2017). Corporate social responsibility disclosures in Malaysia: Evidence from large companies. Social Responsibility Journal, 13(1), 177 – 202. https://doi.org/10.1108/SRJ-062016-0104

  • Saha, A. K. (2018). Relationship between corporate social responsibility performance and disclosures: Commercial banks of Bangladesh. Social Responsibility Journal, 15(4), 451 – 468. https://doi.org/10.1108/SRJ-072017-0137

  • Sairally, B. S. (2013). Evaluating the corporate social performance of Islamic financial institutions : An empirical study.International Journal of Islamic and Middle Eastern Finance and Management, 6(3), 238 – 260. https://doi.org/10.1108/IMEFM-02-2013-0026

  • Shahzad, A. M., & Sharfman, M. P. (2015). Corporate social performance and financial performance: Sampleselection issues. Business & Society, 56(6), 899 – 918. https://doi.org/10.1177/0007650315590399

  • Soana, M. - G. (2011). The relationship between corporate social performance and corporate financial performance in the banking sector. Journal Business Ethics, 104, 133 – 148. https://doi.org/10.1007/s10551-0110894-x

  • Solimun, & Fernandes, A. A. R. (2017). Multivariate statistical method - Structural equation modeling (SEM), Warp PLS approach (2nd ed.). Malang : UB Press.

  • Suto, M., & Takehara, H. (2017). CSR and cost of capital: Evidence from Japan. Social Responsibility Journal, 13(4), 798 – 816. https://doi.org/10.1108/SRJ-10-2016-0170

  • Syed, A. A., & Tripathi, R. (2020). Macroeconomic vulnerabilities and their effect on nonperforming loans in Indian commercial banks. Indian Journal of Finance,14(2),34–49 . https://doi.org/10.17010/ijf/2020/v14i2/150555

  • Syed, M. A., & Butt, S. A. (2017). Financial and non-financial determinants of corporate social responsibility: Empirical evidence from Pakistan. Social Responsibility Journal, 13(4), 780 – 797. https://doi.org/10.1108/SRJ-08-2016-0146

  • Viswanathan, P. K., & Muthuraj, M. (2019). Factors leading to non - performing assets (NPAs): An empirical study. Indian Journal of Finance, 13(1), 55 – 64. https://doi.org/10.17010/ijf/2019/v13i1/141051

  • Wang, Q., Dou, J., & Jia, S. (2015). Ameta-analytic review of corporate social responsibility and corporate financial performance: The moderating effect of contextual factors. Business & Society, 55(8), 1083 – 1121. https://doi.org/10.1177/0007650315584317

  • Wulandari, P., & Kassim, S. (2016). Issues and challenges in financing the poor: Case of Baitul Maal Wa Tamwil in Indonesia. International Journal of Bank Marketing, 34(2), 216 – 234. https://doi.org/10.1108/IJBM01-2015-0007

  • Zaki, A., Sholihin, M., & Barokah, Z. (2014). The association of Islamic bank ethical identity and financial performance: Evidence from Asia. Asian Journal of Business Ethics, 3(2), 97 – 110. https://doi.org/10.1007/s13520-014-0034-7


Abstract Views: 257

PDF Views: 0




  • Could Risk, Corporate Governance, and Corporate Ethics Enhance Social Performance ? Evidence from Islamic Banks in Indonesia

Abstract Views: 257  |  PDF Views: 0

Authors

Hasan Mukhibad
Universitas Negeri Semarang, Indonesia
Doddy Setiawan
Economics and Business Faculty, Universitas Sebelas Maret, Indonesia

Abstract


This study sought to demonstrate empirically the relationship between the level of banks’ risk (measured by leverage, capital adequacy ratio (CAR) ; financing deposit ratio (FDR) ; non-performing financing (NPF), corporate governance mechanism, profitability, and Ethics Disclosure Index (EDI)) on their social performance. The sample was 11 Islamic commercial banks in Indonesia. The data used were secondary data compiled from financial and annual reports for the period from 2009-2017. The data were then processed using multivariate analysis and structural equation modeling with WarpPLS tool. The study demonstrated that banks’ social distribution activities were not used to control risk. The role of the Sharia Supervisory Board (SSB) was not found to be effective in improving banks’ social performance. Meanwhile, the role of independent commissioners was able to increase the distribution of qardh al-hassan (interest free loans) and distribution of qardh (interest free financing). The level of profitability was only able to increase zakah expenditure (religious donations) and EDI was proven empirically to have a positive influence on the distribution of zakah funds and qardh financing. Islamic banks are required to demonstrate performance in terms of social concerns that is well aligned with the achievement of financial performance. The social activities that are a part of the performance of Islamic banks are concrete evidence of bank participation in improving people's welfare, reducing poverty, and caring for the environment.

Keywords


Risk, Corporate Governance, Environmental Performance, Zakah, Qard Financing.

References





DOI: https://doi.org/10.17010/ijf%2F2020%2Fv14i4%2F151706