Assessing the moderating effect of Shariah Board on the relationship between financial performance and accounting disclosure

Abstract

Purpose Shariah Board (SB) is considered as a typical corporate governance mechanism for the Islamic banking system. This board takes the responsibilities of assuring the compliance of transactions and operations with Islamic rules and principles. The purpose of this paper is to measure the SB quality and examine its moderating effect on the relationship between financial performance and accounting disclosure quality. Design/methodology/approach This study used a sample of 90 Islamic banks (IBs) during the period 2010-2014. The accounting disclosure quality and the SB quality were measured using self-developed indices. The moderating effect of the SB on the performance/disclosure relationship was examined using the hierarchical regression analysis. Findings The main finding of this study is related to the negative moderating effect of SB quality on the relationship between performance and disclosure. Accordingly, it can be said that the higher the quality of the SB is, the lesser the performance affects the disclosure. This result seems to indicate that at high level of SB quality, even when the performance decreases, the IBs engage in complying with accounting disclosure requirements in order to inform the stakeholders on the real situation of the bank. Research limitations/implications The finding of this study would be of great support to stakeholders and policy makers to make more pressure on IBs to improve the quality of their SB structure and show more compliance with the governance recommendations. As an extension to this study, further research can examine other Islamic governance mechanisms, such as the Internal Shariah Review. Originality/value To the authors’ knowledge, there has been a dearth of studies dealing with the empirical examination of the moderating impact of the SB quality on the association between the financial performance and the disclosure quality. Therefore, this study could be considered a tentative contribution to the literature by providing some empirical evidence on the links between these three variables using the moderation regression analysis.

Shari’ah Governance and Islamic Banks Performance: Evidence from South Asia

“…Four firm level control variables namely EQTA, NLTA, log of total assets (LnTA) and Z-score were used for the empirical investigation.ICG index was found consistently insignificant in all of the 6 models results, this does not supports hypothesis H1. This finding is consistent with the work of (Ajili & Bouri, 2018). SBS is found positively significant for all the three performance variables.…”

“…Erol, F, Aydogan, and Tunç (2014) found that IBs in Turkey are more profitable than CBs. Ajili and Bouri (2018) assert that IBs in GCC countries valued the effectiveness of SSBs much more than the CBs governance mechanisms. Indeed, a reasonable consensus in the literature suggesting that IBs improve firms profitability, however, research on Shari' ah supervisions in relation to firms performance is still low, particularly Shari, ah governance on the IBs performance (Nathan, 2010;Mollah & Zaman, 2015).…”

“…For measuring the effectiveness of Shari'ah boards (Ajili & Bouri, 2018) incorporated four features, SSB existence, SSB size, SSB experience and SSB education, in an index and found marginal effect on performance. On other side to find-out the accumulative effect of CG related items on firm performance.…”

Joint venture investments: An analysis of the level of compliance with the disclosure requirements of IFRS 12

“…The estimation results for Model 1 indicate that SIZE is significantly positively associated with the level of compliance (coef =0.069; p =.0047). This finding is aligned with previous literature that suggests that larger firms are expected to disclose more information than smaller firms (Ajili & Bouri, 2018;Archambault & Archambault, 2003;Cascino & Gassen, 2015;Mazzi et al, 2018;Santos et al, 2014).…”

“…Similarly, firm size is positively associated with the level of disclosure (Ajili & Bouri, 2018;Cascino & Gassen, 2015;Mazzi et al, 2018;Santos et al, 2014). Larger firms tend to be more exposed to public demand for information and are therefore more likely to disclose more to reduce political pressure (Archambault & Archambault, 2003).…”