“The determinants of Islamic governance disclosure: the case of Indonesian Islamic banks”

This paper aims to examine the determinants of Islamic Governance Disclosure (IGD) in Islamic banks in Indonesia. The research method used is a quantitative approach involving Islamic commercial banks in Indonesia, where their annual reports can be accessed during the 2011–2018 observation period. The data collection methods used are analysis of documentation and content analysis. Content analysis was used to calculate the IGD index. Path analysis with WarpPLS software was used to analyze data. The results show that the number of members of the Sharia supervisory board had a negative and significant effect on IGD, while leverage, size, and age can influence the IGD positively and significantly. In addition, institutional ownership has a negative and significant effect on IGD. Profitability and composition of the independent board of commissioners do not significantly affect the IGD.


INTRODUCTION
Banks operating in Indonesia consist of two forms, namely conventional banks and Islamic banks.Islamic Bank is a bank that operates based on Islamic sharia.Islamic banks implement good corporate governance (GCG) in their operations.Some terms are known such as sharia corporate governance or sharia governance (Ginena,  ).In the framework of sharia corporate governance, decision making for companies must be based on shura or consultation (Muneeza & Hassan, 2014).Hassan (2012) proposed two structures on sharia corporate governance, namely the tawhid and shura based approach and the stakeholder's approach.Hasan (2010) argued that the sharia governance model in Islamic financial institutions does not exist yet.

BUSINESS PERSPECTIVES
implementing sharia governance systems, namely reactive approach (applied in the UK and Turkey), passive approach (applied in Saudi Arabia), minimalist approach (applied in Bahrain, Dubai and Qatar), pro-active approach (applied in Malaysia), and interventionist approach (applied in Pakistan).Several international institutions issued standards and principles regarding GCG, such as OECD, IFSB, and AAOIFI.AAOIFI adopts Statement on Governance Principles for Islamic Financial Institutions.
The factors that influence the extent of Islamic governance disclosure have not yet been widely studied.Azid and Alnodel (2018) found that industry type, ownership structure, and board composition have a significant effect on the SGD area.While size, leverage, and ROA did not prove to have a significant effect.Albassam and Ntim (2017) found a significant effect of Islamic value disclosure on the level of corporate governance disclosure.They also revealed a significant effect of the audit firm size, board size, government ownership, institutional ownership, and the presence of a GCG committee on the level of voluntary CG disclosure.However, these authors failed to prove the effect of profitability on CG disclosure.Grassa (2018) confirmed that ownership concentration, ROA, leverage, and bank age had a significant effect on CGDI, while size of the bank does not have a significant effect on CGDI.
The results of other studies indicated that the Islamic value index, quality of governance, macroeconomic factors (GDP and inflation) have a positive and significant effect on CGDI (Sarhan & Ntim, 2018).Also, a significant effect of directors' ownership, company size, company age, and ROA on CGDI was found.Block shareholding, growth opportunities, and leverage do not prove to have a significant effect.Haddad, Sbeiti, and Qasim (2017) stated that company size is the main determinant of CG disclosure, followed by external auditing and liquidity.Abdullah, Percy, and Stewart (2015) found that factors influencing voluntary governance disclosure include the size of Islamic banks, the level of political and civil repression and the legal system.This study aims to examine the determinants of the Islamic Governance Disclosure in Islamic banks in Indonesia.It focuses on the activities of the Sharia supervisory board (SSB), the performance of zakat, and disclosures on non-halal income.The determinants that are examined influential on IGD are the SSB, profitability, institutional ownership, government ownership, company size, leverage, and company age.The existence of an independent board of commissioners is also predicted to influence the extent of Islamic governance disclosure.This means the higher the presence of independent commissioners, the more Islamic bank will increase IGD.Based on the description, the research hypotheses are as follows:

LITERATURE REVIEW
H1: SSB has a positive and significant effect on IGD.
H2: Profitability has a positive and significant effect on IGD.
H3: Leverage has a positive and significant effect on IGD.
H4: Size has a positive and significant effect on IGD.
H5: Bank age has a positive and significant effect on IGD.
H6: The composition of independent commissioners has a positive and significant effect on IGD.
H7: Institutional ownership has a positive and significant effect on IGD.

Research population and samples
This research is a cause-and-effect study to examine the factors influencing Islamic governance disclosure (IGD) in Islamic commercial banks in Indonesia.The population in this study is Islamic commercial banks operating in Indonesia.The sampling method uses purposive sampling method addressed to the banks having the criteria of the availability of an annual report online for eight years of observation (2011 to 2018).There are nine Islamic banks that meet the criteria, namely Muamalat Indonesia Bank, Bank Syariah Mandiri, BNI Syariah, Panin Bank Syariah, BCA Syariah, BRI Syariah, May Bank Syariah, Bukopin Syariah, and Mega Bank Syariah.

Operational definition of research variables
The dependent variable in this study is the IGD in Islamic commercial banks in Indonesia.

Techniques or data collection and analysis
Data collection techniques used in this study are documentation and content analysis.Content analysis was developed based on previous research (Abdullah et al., 2013) to measure the disclosure of Islamic governance in Islamic banks in Indonesia.
The data analysis method used is path analysis aiming to test the influence of independent variables on IGD.Besides, the WarpPLS 6.0 software was employed.and ROE) and debt (DAR and DER).There is a large percentage of independent commissioner board members, which is 65.07 % on average.

Results
The prerequisite test results using the WarpPLS software are in Table 3.Based on the results of the prerequisite criteria test, hypothesis testing can be conducted because it meets all the criteria.
The results of hypothesis testing are in Figure 1.
The results show that SSBMEM (membership of the Sharia supervisory board) has a value of P = 0.02 with a coefficient of -0.23.This means that the Sharia supervisory board has a significant effect on Islamic governance disclosure (IGD).However, the coefficient value is negative.The SSBMET variable (number of Sharia supervisory board meetings) has a P-value = 0.330 with a coefficient = -0.051.This means SSB meetings have no significant effect on IGD.SSBATT (the presence of SSB) has a P-value of 0.487 with a coefficient value of -0.004, which means that the attendance rate of SSB members has no significant effect on IGD.
The profitability variable is measured by two proxies, namely ROA and ROE.Both are not proven to have a significant effect on IGD.It can be seen that the P-value of more than 0.005 is 0.239 and 0.153.While the leverage variable with DER proxy proved to have a significant effect on IGD.The P-value of DER is 0.031 or less than 0.05 with a path coefficient value of 0.025.The firm size and total assets size variables showed a positive and significant effect on IGD, in which it has P value < 0.001 with path coefficient 0.602.
The company age variable (AGE) has a P-value = with a path coefficient of 0.318.This shows that the company age has a significant and positive impact on IGD.The INDCOM variable (independent commissioner) has not shown a significant effect on IGD.P-value of INDCOM is 0.208 or more than 0.05.And the INST variable (institutional ownership) has a P-value of 0.001 with a coefficient of -0.330.This means that institutional ownership has a significant effect on IGD.

DISCUSSION
The results showed that leverage with the DER proxy, company size, and company age had a positive and significant effect on IGD.While the existence of a Sharia supervisory board with a proxy for the number of SSB members and institutional ownership proved to have a negative and significant impact on IGD.Other variables were not proven to have a significant effect on IGD.
The existence of the SSB is supposed to have a positive and significant effect on IGD.This means the existence of the SSB will cause the management of the Islamic banks to fully disclose information, including the implementation of corporate governance.In this study, the existence of SSB measured by the number of members proved to be significant but negative.The increasing number of the SSB members actually caused a decline in the index of Islamic governance disclosure.This can be explained by the fact that the number of SSB members is less important than that of its performance.Leverage is also proven to have a positive and significant effect on IGD.This means the higher the leverage level of Islamic banks, the high-  er the index of Islamic governance disclosure.The management of Islamic banks wanted to show that they are able to manage the company well despite the high level of leverage.Thus, trust in the bank is maintained.Grassa (2018) and Sharma (2014) have succeeded in finding a significant effect of leverage on governance disclosure.Whereas Azid and Alnodel (2018) and Sarhan and Ntim (2018) found insignificant influence.
The results of the next study indicated that the size of the company has a positive and significant effect on IGD.The level of disclosure of Islamic governance will be higher if Islamic banks have high assets.The bigger the Islamic Bank is, the greater the understanding of the importance of Islamic governance disclosure will be.Research findings confirmed previous results (Abdullah et al., 2015;Haddad et al., 2017;Sarhan & Ntim, 2018).Further, Sharma (2014) also found a significant relationship between company size and corporate governance disclosure.
Islamic governance disclosure is also influenced by the company age.Like the company size, the longer the Islamic bank is established, the higher the level of Islamic governance disclosure will be.The long-established Islamic banks have gone through many rules and guidelines to implement Islamic governance.Islamic governance disclosure is considered to have a positive impact on the company.
Institutional ownership has a negative and significant effect on IGD.This means the ownership of shares by institutions requires a low level of disclosure of Islamic governance.This could be due to the poor understanding of the importance of Islamic governance disclosure.The disclosure of Islamic governance may not be considered to have a significant effect on the performance of Islamic banks.Therefore, it was not properly implemented.The higher disclosure of Islamic governance allows more information to be spread openly.This may be a condition avoided by institutional shareholders.

CONCLUSION
The result showed that the number of sharia supervisory board members, leverage, size, and age had significant and positive impact on IGD.And there is a negative and significant effect of institutional ownership on IGD.The number of meetings and the attendance rate are not able to significantly influence IGD.Meanwhile, profitability has not been proven to have a significant impact on IGD.Debt to equity ratio (DER) was also not proven to have a significant effect on IGD.At least, the composition of the independent board of commissioners also has no significant effect on IGD.
The existence of a Sharia supervisory board is one of the important components in the operation of Islamic banks.SSB can play a role in ensuring the operational activities of Islamic banks in accordance with Sharia (Islamic law).This article argues that the existence of SSB, as measured by the number of SSB members, can significantly affect the disclosure of Islamic governance.
Sarhan and Ntim (2018) influenced by SSB.The more active the SSB members, the more Islamic banks will tend to express CG well.Sarhan and Ntim (2018)found that the Islamic value index had a positive and significant effect on CGDI.

Table 1 .
Operational definition of research variables

Table 3 .
Results of the prerequisite test