Unlocking Financial Performance Through Islamic Corporate Governance and Islamic Social Reporting

Mira Munira; Muhammad Hakimi Mohd Shafiai

doi:10.32535/ijabim.v11i2.4719

Unlocking Financial Performance Through Islamic Corporate Governance and Islamic Social Reporting

Mira Munira, Muhammad Hakimi Mohd Shafiai

Abstract

Despite the rapid growth of Islamic banking, the effectiveness of Islamic Corporate Governance (ICG) and Islamic Social Reporting (ISR) in improving financial performance remains inconclusive. This research aims to examine the influence of ICG and ISR on the financial performance of Islamic Commercial Banks (ICBs) in Indonesia. The research uses a quantitative approach, drawing on secondary data from annual reports and financial statements. The sample was selected through purposive sampling, and data were analyzed using panel data regression in Stata. Financial performance is proxied by Return on Assets (ROA), with variable controls including bank age, bank size, NPF, OER, CAR, and FDR. The data are analyzed using panel data regression with the Panel Corrected Standard Errors (PCSE) approach to address issues of heteroscedasticity and autocorrelation. The research results show that ICG has a positive and significant effect on financial performance (b = 0.926; p = 0.027), while ISR does not have a significant effect (b = -0.594; p = 0.187). The findings suggest that ICBs should prioritize strengthening the quality of ICG, particularly the effectiveness of Sharia governance, transparency, and supervisory mechanisms, as these directly impact profitability. Meanwhile, ISR should be transformed from a compliance-oriented disclosure into a strategic value-creation instrument that enhances stakeholder trust and contributes to long-term financial sustainability.

Keywords

Financial Performance; Islamic Banks; Islamic Corporate Governance; Islamic Social Reporting; Return on Assets

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DOI: https://doi.org/10.32535/ijabim.v11i2.4719