CEO hubris and Islamic banks’ performance: Investigating the roles of Sharia board vigilance and CEO power

This research aims to examine the correlation between the Sharia Supervisory Board (SSB) and corporate governance in terms of the performance of Islamic banks’ Profit-and-Loss Sharing (PLS) ratio, zakah performance and non-halal income ratio, and to analyze the relationship between risk and income for both PLS and murabahah financing and the PLS financing ratio. Non-halal income is a bank’s income that is not in accordance with Sharia law. The object of this research was a sample of eleven commercial Islamic banks in Indonesia. The data are collected from each bank’s annual report and corporate governance statement, for 2009–2016. This study uses the multiple regression analysis method. The results show that:

1. The size and educational background of the SSB has a significant and positive effect on the zakah performance (Islamic tax), and has a negative effect on the ratio of non-halal income. The size and educational background of the SSB has no impact on the PLS financing ratio.
2. Corporate governance has a significant and positive influence on the PLS financing ratio and zakah performance but has no influence on the non-halal income ratio.
3. The mudharaba risk and PLS revenue have a positive impact on the PLS financing ratio.
4. PLS financing risk and murabahah income have a negative impact on PLS financing ratio.

The disclosure of risk by Islamic banks is very important, as this openness of information is emphasized in Islamic teachings. The purpose of this article is to provide empirical evidence regarding the influence of the number of members of the Sharia Supervisory Board (SSB) and their cross membership, the debt and the Syirkah fund ratio (investment accounts), the composition of the board of commissioners, the number of audit committee members, and the amount of assets on risk disclosure by Indonesian Islamic banks.
The study uses content analysis techniques to measure risk disclosure by Islamic banks. The analysis uses panel data regression with observations for the period of 2010–2017. Based on the Fixed Effect Model, the study found out that the number of SSB members, the cross memberships of SSB, the ratio of independent commissioners to the number of audit committees do not influence risk disclosure. The leverage to investment account ratio does not influence risk disclosure. Also, the results of this study demonstrate that only the amount of assets influences risk disclosure.

This paper aims to study Islamic banking (IB) regulations related to the influence of the Sharia corporate governance (SCG) mechanism on financial reporting timeliness (FRTL) in Indonesia. The unbalanced panel data obtained empirically during a period that ranges from 2016 to 2019 includes observations from 54 Islamic commercial banks (ICb), 82 Sharia business unit (SBu) banks and 82 conventional banks (CB). Panel regression model is used in this study to adjust the unbalanced panel data obtained. The findings indicate that the variation of FRTL for IBs (represented by ICb) is determined by Sharia corporate governance (SCG) mechanisms. Further findings relate to a comparative study of variations in FRTL between ICb, SBu, and CBs. Although there are different determinants between ICb (SCG) and CBs (CG), there is no difference in FRTL variation between the two. Meanwhile, between ICb and SBu, whose regulations have the same determinant, there are differences between the two FRTL variations. The novelty of this paper is that, firstly, SCG is constructed on the basis of the IBs regulation to determine FRTL, and secondly, the variationі in FRTL between the IBs and CBs groups are compared.