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Volume 5 • Issue 3 | November 2021

Disclosure, Shariah governance and financial performance in Islamic banks

Mariem Ben Abdallah, and Slah Bahloul

09/11/2021 191 0 0
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Financial performance Islamic banks AAOIFI disclosure standards Shariah governance Generalized method of moments (GMM) 3SLS

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.

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Further reading

  1. Haniffa, R. and Hudaib, M. (2007), “Exploring the ethical identity of Islamic banks via communication in annual reports”, Journal of Business Ethics, Vol. 76 No. 1, pp. 97-116, doi: 10.1007/s10551-006-9272-5.

JEL classification: G21,G34

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