Effects of Internal Finance, Islamic Governance and Islamic Corporate Responsibility on Profitability: Evidence of Islamic Banking in Indonesia

Abstract

Purpose: The objective of this study was analyze the interrelationships of internal financial factors, which include financing risk and capital adequacy, ICG and ICSR as determinants of ROA in Islamic banking in Indonesia. Theoretical framework: Previous studies have provided mixed results regarding the application of ICG to profitability. Therefore, it is necessary to re-examine the implementation of ICG on the profitability of Islamic banks. Design/methodology/approach: The research sample consist of 14 sharia commercial banks in Indonesia in the study period 2012 to 2021 with a total of 130 observations. This study used multiple regression analysis. Findings: The results showed a negative effect of NPF on ROA financial performance. Furthermore, there was a positive effect of CAR and ICG disclosure on ROA financial performance. Meanwhile, disclosure of ICSR had no significant effect on ROA financial performance. Age control variables and Islamic bank size were found to have no effect on ROA. Research, Practical & Social implications: The government can make a regulation requiring Islamic banks in Indonesia to carry out ICSR because it is more suitable with business forms that use Islamic concepts. Originality/value: This study offers an examination of the factors affecting financial performance of financial and non-financial factors. Financial factors are seen in terms of financing risk and capital adequacy while non-financial factors are represented by sharia governance and sharia social responsibility in sharia commercial banks in Indonesia.