Unraveling the Complex Dynamics of Islamic Social Reporting and Financial Performance: A Study of Mediating and Moderating Factors in Islamic Banks

Saipul Arni Muhsyaf

doi:10.14421/grieb.2023.111-01

Authors

Saipul Arni Muhsyaf University of Mataram, Indonesia

DOI:

https://doi.org/10.14421/grieb.2023.111-01

Keywords:

Islamic Social Reporting, Financial Performance, Ownership Concentration, Bank Size, Board of Independence Composition, Leverage, Mediating and Moderating Effects

Abstract

Islamic Social Reporting (ISR) is crucial for Islamic banks as it captures the extent of their adherence to social and ethical principles, which influences their financial performance. Drawing on stakeholder theory the primary objective of this study is to scrutinize the impact of ISR on the financial performance of Islamic banks in Indonesia, with a specific focus on the mediating and moderating roles of key governance factors, namely ownership concentration, bank size, board independence composition, and leverage. The study is based on data from ten Indonesian Islamic commercial banks from 2017 to 2020, utilizing regression models and Path SEM analysis for assessment. The findings reveal a positive impact of ISR on financial performance. Additionally, it is discovered that the board independence composition and leverage significantly moderate the ISR-financial performance relationship. However, the study does not find evidence of the mediating effects of ownership concentration and bank size. While the moderating roles of board independence composition and leverage align with prior research, the absence of mediation effects contrasts with previous studies.

Originality/Value: This research offers a distinct exploration of the relationship between ISR-financial and financial performance relationship within the specific context of Indonesian Islamic banks. It creatively probes the mediating and moderating impacts of select governance variables, a largely unexplored territory in extant literature. The findings of this study contribute to the theoretical framework of ISR's influence on financial performance and provide actionable insights for policy and strategic decisions in Islamic banks. It underscores the potential of such studies to drive sustainable growth, thereby laying the groundwork for future research.

Downloads

Download data is not yet available.

Abstract viewed: 453 times |

PDF downloaded = 363 times

References

Abdallah, M. B., & Bahloul, S. (2022). Further evidence on the effect of financial performance and governance on the Islamic banks' disclosure. Asian Journal of Accounting Research, 8. https://doi.org/10.1108/AJAR-09-2021-0156

Acock, A. C. (2013). Discovering structural equation modeling using Stata: Revised edition (1st ed.). Stata Press.

Altunbas, Y., Manganelli, S., & Marques-Ibanez, D. (2011). Bank risk during the financial crisis: Do business models matter? ECB Working Paper(1394). https://doi.org/10.2139/ssrn.1945143

Andhari, D. S., Muflih, M., & Burhany, D. I. (2022). Examining the model of Islamic bank profitability: The roles Islamic social responsibility, firm size, leverage, and board size. Review of Islamic Economics and Finance, 5(2), 147-160. https://doi.org/10.17509/rief.v5i2.46949

Ascarya, A., & Yumanita, D. (2008). Comparing the efficiency of Islamic banks in Malaysia and Indonesia. Buletin Ekonomi Moneter dan Perbankan, 11(2), 95-119-195–119. http://www.bmeb-bi.org/index.php/BEMP/article/download/237/214

Baltagi, B. H. (2021). Econometric analysis of panel data. Springer International Publishing.

Bangun, N. (2019). The effect of CSR, credit interest, and bank size on financial performance. Jurnal Akuntansi, 23(2), 177. https://doi.org/10.24912/ja.v23i2.576

Barney, J. B., & Wright, P. M. (1998). On becoming a strategic partner: The role of human resources in gaining competitive advantage. Human Resource Management, 37(1), 31-46.

Belsley, D. A., Kuh, E., & Welsch, R. E. (1980). Regression diagnostics: Identifying influential data and sources of collinearity. John Wiley & Sons, Inc. http://doi.wiley.com/10.1002/0471725153

Bentler, P. M., & Raykov, T. (2000). On measures of explained variance in nonrecursive structural equation models. The Journal of applied psychology, 85 1, 125-131.

Berger, A. N., & DeYoung, R. (1997). Problem loans and cost efficiency in commercial banks. Journal of Banking & Finance, 21(6), 849-870. https://doi.org/10.1016/s0378-4266(97)00003-4

Breusch, T. S., & Pagan, A. R. (1979). A simple test for heteroscedasticity and random coefficient variation. Econometrica, 47(5), 1287-1294. https://doi.org/10.2307/1911963

Buzzavo, L. (2012). Strategy innovation as business model reconfiguration. Working Papers. https://ideas.repec.org//p/vnm/wpdman/15.html

Cahya, B. T., Hanifah, U., Marpaung, M., & Lubis, I. S. (2019). The development of Islamic social reporting as a concept of social accountability based on Sharia. KnE Social Sciences, 97-110. https://doi.org/10.18502/kss.v3i14.4301

Cahya, B. T., & Rohmah, F. (2019). Evolution of Islamic social reporting: Viewed from Islamic position in the continuum social responsibility. Jurnal Ekonomi dan Bisnis Islam (Journal of Islamic Economics and Business), 5(2), 196. https://doi.org/10.20473/jebis.v5i2.15143

Cain, M. (2021). Structural equation modeling using Stata. Journal of Behavioral Data Science. https://doi.org/10.35566/jbds/v1n2/p7

Chaganti, R., & Damanpour, F. (1991). Institutional ownership, capital structure, and firm performance. Strategic Management Journal, 12(7), 479-491. https://doi.org/https://doi.org/10.1002/smj.4250120702

Chen, H. (2020, 14 December 2020). The impact of financial leverage on firm performance – Based on the moderating role of operating leverage. Advances in Economics, Business and Management Research, Fifth International Conference on Economic and Business Management (FEBM 2020), Sanya, China.

Dinh, H. T., & Pham, C. D. (2020). The effect of capital structure on financial performance of Vietnamese listing pharmaceutical enterprises. The Journal of Asian Finance, Economics and Business, 7(9), 329-340. https://doi.org/10.13106/JAFEB.2020.VOL7.NO9.329

Elgattani, T., & Hussainey, K. (2021). The impact of AAOIFI governance disclosure on Islamic banks performance. Journal of Financial Reporting and Accounting, 19(3), 434-454. https://doi.org/10.1108/JFRA-03-2020-0053

Elhussein, N. (2018). The Sharia supervisory board: Does it influence corporate social responsibility disclosure by Islamic banks? A review. Journal of Islamic Studies and Culture, 6. https://doi.org/10.15640/jisc.v6n1a13

Fachrurrozie, Nurkhin, A., Wahyudin, A., Mamnukhin Kholid, A., & Agustina, I. (2021). The effect of profitability, size and Shariah supervisory board of an Indonesian Islamic bank on the Islamic social reporting disclosure. Banks and Bank Systems, 16(3), 84-92. https://doi.org/10.21511/bbs.16(3).2021.08

Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. The Journal of Law & Economics, 26(2), 301-325. https://www.jstor.org/stable/725104

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

Framitha, D. S., Umdiana, N., & Depi, E. A. R. (2023). The effect of Islamic social reporting and profitability on assets on fiscal aggressiveness with independent commissioner as a moderator variable. JAK (Jurnal Akuntansi) Kajian Ilmiah Akuntansi, 10(1), 110-127. https://doi.org/10.30656/jak.v10i1.5553

Frank, M. Z., & Goyal, V. K. (2009). Capital structure decisions: Which factors are reliably important? Financial Management, 38(1), 1-37. https://doi.org/https://doi.org/10.1111/j.1755-053X.2009.01026.x

Franzoni, S., & Allali, A. A. (2018). Principles of Islamic finance and principles of corporate social responsibility: What convergence? Sustainability, 10(3), 637. https://doi.org/10.3390/su10030637

Freeman, R. E. (1984). Strategic management: A stakeholder approach. Pitman.

Freeman, R. E. (2010). Strategic management: A stakeholder approach. Cambridge University Press.

Freeman, R. E., Harrison, J. S., Wicks, A. C., Parmar, B. L., & de Colle, S. (2010). Stakeholder theory: The state of the art. Cambridge University Press.

Godos-Díez, J.-L., Fernández-Gago, R., Cabeza-García, L., & Martínez-Campillo, A. (2014). Determinants of CSR practices: Analysis of the influence of ownership and the management profile mediating effect. Spanish Journal of Finance and Accounting/Revista Española de Financiación y Contabilidad, 43(1), 47-68. https://doi.org/10.1080/02102412.2014.890824

Greene, W. H. (2017). Econometric analysis. Pearson Education.

Griffin, J. J., & Mahon, J. F. (1997). The corporate social performance and corporate financial performance debate: Twenty-five years of incomparable research. Business & Society, 36(1), 5-31. https://doi.org/10.1177/000765039703600102

Gujarati, D., Porter, D., & Gunasekar, S. (2012). Basic econometrics (5th ed.). Tata McGraw Hill Education Private Limited.

Guluma, T. F. (2021). The impact of corporate governance measures on firm performance: The influences of managerial overconfidence. Future Business Journal, 7(1), 50. https://doi.org/10.1186/s43093-021-00093-6

Gunzler, D., Chen, T., Wu, P., & Zhang, H. (2013). Introduction to mediation analysis with structural equation modeling. Shanghai Arch Psychiatry, 25(6), 390-394. https://doi.org/10.3969/j.issn.1002-0829.2013.06.009

Hair, J. F., Black, W. C., Babin, B. J., & Anderson, R. E. (2014). Multivariate data analysis (Seventh ed.). Pearson Education Limited.

Hair, J. F., Hult, G. T. M., Ringle, C. M., Sarstedt, M., Danks, N. P., & Ray, S. (2021). An introduction to structural equation modeling. In J. F. Hair Jr, G. T. M. Hult, C. M. Ringle, M. Sarstedt, N. P. Danks, & S. Ray (Eds.), Partial Least Squares Structural Equation Modeling (PLS-SEM) using R: A workbook (pp. 1-29). Springer International Publishing. https://doi.org/10.1007/978-3-030-80519-7_1

Hanić, A., & Efendic, V. (2020). Islamic approach to corporate social responsibility in scientific research with CSR overview in banking sector of Bosnia and Herzegovina. In V. Efendic (Ed.), Islamic finance practices: Experiences from South Eastern Europe (pp. 41-76). Springer International Publishing. https://doi.org/10.1007/978-3-030-34420-7_3

Hanic, A., & Smolo, E. (2023). Islamic approach to corporate social responsibility: An international model for Islamic banks. International Journal of Islamic and Middle Eastern Finance and Management, 16(1), 175-191. https://doi.org/10.1108/IMEFM-07-2021-0284

Haniffa, R. (2002). Social responsibility disclosure: An Islamic perspective. Indonesian Management and Accounting Research, 1, 128-146.

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

Hayes, A. F. (2013). Introduction to mediation, moderation, and conditional process analysis: A regression-based approach. Guilford Press.

Hosseini, A., Soltani, S., & Mehdizadeh, M. (2018). Competitive advantage and its impact on new product development strategy (Case study: Toos Nirro technical firm). Journal of Open Innovation: Technology, Market, and Complexity, 4(2), 17. https://doi.org/10.3390/joitmc4020017

Hu, L. t., & Bentler, P. M. (1999). Cutoff criteria for fit indexes in covariance structure analysis: Conventional criteria versus new alternatives. Structural Equation Modeling: A Multidisciplinary Journal, 6(1), 1-55. https://doi.org/10.1080/10705519909540118

Hussain, A., Khan, M., Rehman, A., Sahib Zada, S., Malik, S., Khattak, A., & Khan, H. (2020). Determinants of Islamic social reporting in Islamic banks of Pakistan. International Journal of Law and Management, 63(1), 1-15. https://doi.org/10.1108/ijlma-02-2020-0060

Jan, A., Rahman, H. U., Zahid, M., Salameh, A. A., Khan, P. A., Al-Faryan, M. A. S., Che Aziz, R. B., & Ali, H. E. (2023). Islamic corporate sustainability practices index aligned with SDGs towards better financial performance: Evidence from the Malaysian and Indonesian Islamic banking industry. Journal of Cleaner Production, 405, 136860. https://doi.org/https://doi.org/10.1016/j.jclepro.2023.136860

Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American Economic Review, 76(2), 323-329. https://www.jstor.org/stable/1818789

Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behaviour, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360. https://doi.org/10.1016/0304-405x(76)90026-x

Jihadi, M., Vilantika, E., Widagdo, B., Sholichah, F., Bachtiar, Y., & McMillan, D. (2021). Islamic social reporting on value of the firm: Evidence from Indonesia Sharia stock index. Cogent Business & Management, 8(1). https://doi.org/10.1080/23311975.2021.1920116

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

Kline, R. B. (2022). Principles and practice of structural equation modeling: Fifth Edition (Fifth Edition ed.). Guilford Press.

Koke, J., & Renneboog, L. (2005). Do corporate control and product market competition lead to stronger productivity growth? Evidence from market-oriented and blockholder-based governance regimes. Journal of Law and Economics, 48(2), 475-516. https://ideas.repec.org//a/ucp/jlawec/y2005v48i2p475-516.html

Kusumasari, A. P. S., Aisjah, S., & Ratnawati, K. (2023). Islamic social reporting mediates the effect of profitability and leverage on firm value. International Journal of Research in Business and Social Science (2147- 4478), 12(3), 01-09. https://doi.org/10.20525/ijrbs.v12i3.2520

Laeven, L., & Levine, R. (2009). Bank governance, regulation and risk taking. Journal of Financial Economics, 93(2), 259-275. https://doi.org/10.1016/j.jfineco.2008.09.003

Laeven, L., Ratnovski, L., & Tong, H. (2014). Bank size and systemic risk. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2437729

Lanouar, C., & Elmarzougui, A. (2011). Institutional ownership and firm performance: Evidence from France. The IUP Journal of Behavioral Finance, VII(4), pp. 35-46. https://papers.ssrn.com/abstract=1751860

Little, T., Card, N., Bovaird, J., Preacher, K., & Crandall, C. (2007). Structural equation modeling of mediation and moderation with contextual factors. In T. D. Little, J. A. Bovaird, & N. A. Card (Eds.), Modeling Contextual Effects in Longitudinal Studies (pp. 207-230). Lawrence Erlbaum Associates Publishers. https://www.taylorfrancis.com/books/9781135594183

Maali, B., Casson, P., & Napier, C. (2006). Social reporting by Islamic banks. Abacus, 42(2), 266-289. https://doi.org/10.1111/j.1467-6281.2006.00200.x

Mahrani, M., & Soewarno, N. (2018). The effect of good corporate governance mechanism and corporate social responsibility on financial performance with earnings management as mediating variable. Asian Journal of Accounting Research, 3(1), 41-60. https://doi.org/10.1108/AJAR-06-2018-0008

Mallin, C., Farag, H., & Ow-Yong, K. (2014). Corporate social responsibility and financial performance in Islamic banks. Journal of Economic Behavior & Organization, 103, S21-S38. https://doi.org/https://doi.org/10.1016/j.jebo.2014.03.001

Mansour, W., Ben Jedidia, K., & Majdoub, J. (2015). How ethical is Islamic banking in the light of the objectives of Islamic law? Journal of Religious Ethics, 43(1), 51-77. https://doi.org/https://doi.org/10.1111/jore.12086

Mehmetoglu, M. (2018). Medsem: A Stata package for statistical mediation analysis. International Journal of Computational Economics and Econometrics, 8(1), 63. https://doi.org/10.1504/ijcee.2018.088321

Orlitzky, M., Schmidt, F. L., & Rynes, S. L. (2003). Corporate social and financial performance: A meta-analysis. Organization Studies, 24(3), 403-441. https://doi.org/10.1177/0170840603024003910

Othman, R., Thani, A., & K Ghani, E. (2009). Determinants of Islamic social reporting among top Shari'a-approved companies in Bursa Malaysia. Research Journal of International Studies, 12.

Pandey, K. D., Sahu, T. N., & Manna, A. (2021). Evidence on the non-linear effect of large ownership on the enterprise value of Indian manufacturing firms. Vision, 26(3), 328-338. https://doi.org/10.1177/0972262920984017

Peraturan Kepala Otoritas Jasa Keuangan Republik Indonesia No. 16/POJK.03/2022 Tahun 2022 tentang Bank Umum Syariah, (2022). https://peraturan.bpk.go.id/Home/Details/227442/peraturan-ojk-no-16pojk032022-tahun-2022

Peraturan BI No. 11/33/PBI/2009 tentang Pelaksanaan Good Corporate Governance bagi Bank Umum Syariah dan Unit Usaha Syariah, (2009). https://peraturan.bpk.go.id/Home/Details/137576/peraturan-bi-no-1133pbi2009

Peraturan BI No. 14/6/PBI/2012 tentang Uji Kemampuan dan Kepatutan (Fit and Proper Test) Bank Syariah dan Unit Usaha Syariah, (2012). https://peraturan.bpk.go.id/Home/Details/137438/peraturan-bi-no-146pbi2012

Peraturan BI No. 15/13/PBI/2013 Tahun 2013 tentang Perubahan atas Peraturan Bank Indonesia Nomor 11/3/PBI/2009 tentang Bank Umum Syariah, (2013). https://peraturan.bpk.go.id/Home/Details/137019/peraturan-bi-no-1513pbi2013-tahun-2013

Preacher, K. J., & Hayes, A. F. (2008). Asymptotic and resampling strategies for assessing and comparing indirect effects in multiple mediator models. Behavior Research Methods, 40(3), 879-891. https://doi.org/10.3758/BRM.40.3.879

Probohudono, A. N., Nugraheni, A., & Nurrahmawati, A. (2021). Comparative analysis of QISMUT+3’s Islamic corporate social responsibility. Journal of Islamic Marketing, 13(7), 1436-1456. https://doi.org/10.1108/jima-05-2020-0146

Putri, A. K., Fitriyanti, E., Sulistiana, I., Fahria, I., & Hidayati. (2019). The effect of Islamic social reporting index on Islamic banking financial performance in Indonesia. Humanities & Social Sciences Reviews, 7(4), 609-616. https://doi.org/10.18510/hssr.2019.7481

Salman, K. R. (2023). Antecedents and consequences of Islamic bank performance based on the maqashid sharia index. The Indonesian Accounting Review, 13(1), 35-47. https://doi.org/10.14414/tiar.v13i1.3015

Sami, H., Wang, J., & Zhou, H. (2011). Corporate governance and operating performance of Chinese listed firms. Journal of International Accounting, Auditing and Taxation, 20(2), 106-114. https://doi.org/10.1016/j.intaccaudtax.2011.06.005

Sardeshmukh, S. R., & Vandenberg, R. J. (2016). Integrating moderation and mediation: A structural equation modeling approach. Organizational Research Methods, 20(4), 721-745. https://doi.org/10.1177/1094428115621609

Sarea, A., & Salami, M. A. (2021). Does social reporting matter? Empirical evidence. Journal of Financial Regulation and Compliance, 29(4), 353-370. https://doi.org/10.1108/jfrc-09-2020-0088

Schaltegger, S., Hörisch, J., & Freeman, R. E. (2017). Business cases for sustainability: A stakeholder theory perspective. Organization & Environment, 32(3), 191-212. https://doi.org/10.1177/1086026617722882

Siswanti, I., & Setyaningrum, R. P. (2023). The role of Sharia compliance on Islamic social reporting disclosure of Islamic banks in Indonesia. International Journal of Artificial Intelligence Research, 6(1.2). https://doi.org/10.29099/ijair.v6i1.375

Sörbom, D. (1989). Model modification. Psychometrika, 54(3), 371-384. https://doi.org/10.1007/bf02294623

Sukmana, R., & Ibrahim, M. H. (2017). How Islamic are Islamic banks? A non-linear assessment of Islamic rate – Conventional rate relations. Economic Modelling, 64, 443-448. https://doi.org/10.1016/j.econmod.2017.02.025

Susbiyani, A., Halim, M., & Animah, A. (2023). Determinants of Islamic social reporting disclosure and its effect on firm’s value. Journal of Islamic Accounting and Business Research, 14(3), 416-435. https://doi.org/10.1108/JIABR-10-2021-0277

Udayasankar, K. (2008). Corporate social responsibility and firm size. Journal of Business Ethics, 83(2), 167-175. https://doi.org/10.1007/s10551-007-9609-8

Utama, C. A., & Utama, S. (2019). Board of commissioners in corporate governance, firm performance, and ownership structure. International Research Journal of Business Studies, 12(2), 111-136. https://doi.org/10.21632/irjbs.12.2.111-136

Vicente-Lorente, J. D. (2001). Specificity and opacity as resource-based determinants of capital structure: Evidence for Spanish manufacturing firms. Strategic Management Journal, 22(2), 157-177. https://www.jstor.org/stable/3094312

Waddock, S. A., & Graves, S. B. (1997). The corporate social performance-financial performance link. Strategic Management Journal, 18(4), 303-319.

Wahyuni, N., & Wafiroh, N. L. (2023). Good corporate governance disclosures and financial performance: Islamic social reporting and zakah disclosures as mediating. EL DINAR: Jurnal Keuangan dan Perbankan Syariah, 11(1), 18-34. https://doi.org/10.18860/ed.v11i1.20491

Wang, T., & Bansal, P. (2012). Social responsibility in new ventures: Profiting from a long-term orientation. Strategic Management Journal, 33(10), 1135-1153. http://www.jstor.org/stable/23260265

Wooldridge, J. M. (2010). Econometric analysis of cross section and panel data (2nd ed.). The MIT Press.

Yuliana, I., & Sartika, F. (2020). Mediating effect of Islamic social reporting on the relationship between good corporate governance and company value: The case of the state-owned enterprises. Global Review of Islamic Economics and Business, 8(1), 001. https://doi.org/10.14421/grieb.2020.081-01

Zafar, M. B., & Sulaiman, A. A. (2019). Corporate social responsibility and Islamic banks: A systematic literature review. Management Review Quarterly, 69(2), 159-206. https://doi.org/10.1007/s11301-018-0150-x

Zhang, L. (2022). Do largest shareholders incentively affect financial sustainability under holdings heterogeneity? Regulation/intermediary of financial constraints through managerial behavior games. Frontiers in Psychology, 13, 754608. https://doi.org/10.3389/fpsyg.2022.754608

Zulfikar, R., Niki, L., Suhardjanto, D., Sri, M., & Agustiningsih, S. (2017). Competition, independent commissioner, risk disclosure and financial performance. Review of Integrative Business & Economics Research, 6, 76-91.