Impacts of Sharīʿah supervision and corporate social responsibility on banks’ risk-taking behavior and profitability

Abstract

Purpose This paper aims to examine the impacts of both Sharīʿah supervision and corporate social responsibility on banks’ risk-taking behavior and profitability. The analysis empirically uses dynamic and balanced panel data from 12 banks of Bangladesh for 2010–2019. Design/methodology/approach Dynamic panel generalized method of moments has been used primarily to examine the effects of Sharīʿah supervision and corporate social responsibility on risk-taking behavior and profitability. Later, the authors validate the core results using three-stage least squares and incorporates alternative risk and profitability measures in the baseline equation. Findings This study finds that Sharīʿah supervision heterogeneously derives benefits for Islamic banks and Islamic windows. Though there is no significant impact of female diversity on risk relying on board diversification, the bank can strengthen profitability. On the one hand, the annual changes in board composition reduce (increase) risk (financial and stability efficiency) but compromise profitability. Notably, socially responsible banks have been characterized as risk-averse and better stabilized (in terms of solvency and efficiency), more efficient and profitable. Originality/value Very few studies are available in the current literature which examine the impacts of Sharīʿah supervision and corporate social responsibility on either bank performance or risk-taking in the developing economy’s context.

Financial innovation in Islamic banks: evidence on the interaction between Shariah board and FinTech

“…Importantly, SB competencies permit valuable input on Islamic laws and principles, including aqad , i.e. a contract suitable for digital financial products (Ginena and Hamid, 2015; Quttainah and Almutairi, 2017; Moudud-Ul-Huq, 2022; Ahmed et al , 2022). In keeping with the FinTech inclusion agenda, the Islamic banking industry is now actively embedding in and integrating with the technology platform and service provided by FinTech providers.…”

“…An internal auditor of Bank P, a small-sized Islamic Window, expressed a similar view on the unique functions and infrastructure of big data analytics in recording and sharing a database between participants anytime and anywhere, including some concerns about the risk of security data breaches. It is crucial for current SBs to have additional knowledge of the digital infrastructure to understand how the system operates and that mediates data security risks (see example Moudud-Ul-Huq, 2022; Ahmed et al , 2022). A recent study also highlighted important places for the institution to rebuild and transform their governance structure, process, procedures and human capital into a modern digital financial system to gain value with proper practices of big data analytics (La Torre et al , 2018, 2021).…”

“…It is the first study to investigate the significant role of SBs in the innovation of digital finance products through their interaction with FinTech, while prior studies focused on the characteristics and structure of Islamic digital financial products (Evans, 2015; Oseni and Omoola, 2015; Muedini, 2018). IBs should present a great opportunity to leverage the skills and knowledge of SBs for the development of FinTech inclusion in IBs while ensuring Shariah compliance (Moudud-Ul-Huq, 2022; Ahmed et al , 2022). The study sheds light on how the government and SBs may work together to promote financial inclusion and achieve sustainable resource and operational efficiency.…”

“…Islamic financial technology (FinTech) also demonstrated steady market growth of an estimated US$49bn, representing 0.7% of the global FinTech transaction volume and this growth is expected to increase to over US$128bn by 2025 1]. The emergence of technology systems and applications forces many industries, including IBs, to develop more innovative financial products and provide speedy, timely, reliable and effective financial solutions (Morgan et al, 2019;Banna et al, 2022). While the technology solution should comply with all Shariah laws and principles, it should also uphold moral integrity and protect the socio-political environment as the optimal objective of IBs (Safieddine, 2009;Belal et al, 2015;Ullah et al, 2018;Todorof, 2018).…”

The Impact Profitability, Leverage and Firm Size on Disclousure of Corporate Social Responsibility

“…Ukuran perusahaan adalah suatu skala dimana dapat diklasifikasikan besar kecilnya suatu perusahaan melalui indikator tertentu [14]. Perusahaan mempunyai skala yang berbeda satu sama lain baik kecil maupun besar [15].…”