Analysis of the Effect Good Corporate Governance on Financial Performance Islamic Banking

Merry Amelia , Ridwansyah Ridwansyah , Salsabila Mutia Fortuna

Abstract


This study aims to investigate the impact of Good Corporate Governance (GCG) on the financial performance of Islamic banking, specifically measured by Return on Equity (ROE) and Return on Assets (ROA). To achieve this objective, a quantitative research approach is employed, utilizing multiple linear regression analysis to assess the relationship between GCG and the financial performance indicators. The GCG variables examined in this study include the size of the board of directors, the Sharia supervisory board, and the board of commissioners. The population for this research consists of Indonesian Islamic commercial banks, with Bank Muamalat Indonesia serving as the primary case study. The data collected spans the years 2018 to 2022, providing a comprehensive view of the bank's performance over this period. The findings of the study indicate that there is no significant evidence to support a strong relationship between sound GCG practices and financial success in terms of ROE and ROA. This suggests that while GCG is essential for overall governance, its direct impact on financial performance may not be as pronounced as anticipated. Additionally, the study acknowledges several limitations, including the focus on a single bank, which may not fully represent the broader Islamic banking sector in Indonesia. The analysis is also constrained by the availability of data and the specific time frame considered, which may affect the generalizability of the results. Future research could expand the sample size and explore additional factors influencing financial performance in Islamic banking, thereby providing a more comprehensive understanding of the dynamics at play

Keywords


Good Corporate Governance, ROA, ROE

Full Text:

PDF

References


Alam, M. K., Islam, M. S., Islam, F. T., Tabash, M. I., Sahabuddin, M., & Alauddin, M. (2022). One regulator: diversified Shariah governance practices, why? Asian Journal of Accounting Research, 7(3), 332–343. https://doi.org/10.1108/AJAR-07-2021-0104

Alam, M. K., Rahman, M. M., Runy, M. K., Adedeji, B. S., & Hassan, M. F. (2022). The influences of Shariah governance mechanisms on Islamic banks performance and Shariah compliance quality. Asian Journal of Accounting Research, 7(1), 2–16. https://doi.org/10.1108/AJAR-11-2020-0112

Alam, Md. K., Islam, F. T., & Runy, M. K. (2021). Why does Shariah governance framework important for Islamic banks? Asian Journal of Economics and Banking, 5(2), 158–172. https://doi.org/10.1108/ajeb-02-2021-0018

Ashari, M. H., & Anggoro, Y. (2020). Implementation of Green Accounting in Business Sustainability at Public Hospitals in Malang Raya. International Journal of Multicultural and Multireligious Understanding, 7(10), 391. https://doi.org/10.18415/ijmmu.v7i10.2102

Ayu, G., Pramitari, A., Agung, G., Sudiadnyani, O., Luh, N., Norma, P., & Abdi, D. (2019). Green Accounting Based on University Social Responsibility at Politeknik Negeri Bali.

Boudawara, Y., Toumi, K., & Wannes, A. (2023). Shari’ah Governance Quality and Environmental, Social and Governance Performance in Islamic Banks. A Cross-Country Evidence. https://ssrn.com/abstract=4402181

Elamer, A. A., Ntim, C. G., Abdou, H. A., & Pyke, C. (n.d.). Sharia Supervisory Boards, Governance Structures and Operational Risk Disclosures: Evidence from Islamic Banks in MENA Countries.

Haddad, A., & Bouri, A. (2022). The impact of Shariah Advisory Board characteristics on the financial performance of Islamic banks. Cogent Economics and Finance, 10(1). https://doi.org/10.1080/23322039.2022.2062911

Haryati, T., Kirana, N. W. I., Wilasittha, A. A., & Putri, S. Y. (2023). The Effect of Green Accounting Implementation on Islamic University Social Responsibility. Journal of Accounting Science, 7(1), 1–14. https://doi.org/10.21070/jas.v7i1.1654

Hassan, A., Sohail, M. S., & Munshi, M. M. R. (2022). Sharīʿah governance and agency dynamics of Islamic banking operations in the Kingdom of Saudi Arabia. ISRA International Journal of Islamic Finance, 14(1), 89–106. https://doi.org/10.1108/IJIF-12-2020-0252

Jensen, M. C., & Meckling, W. H. (1976a). Also published in Foundations of Organizational Strategy. In Journal of Financial Economics (Issue 4). Harvard University Press. http://ssrn.com/abstract=94043Electroniccopyavailableat:http://ssrn.com/abstract=94043http://hupress.harvard.edu/catalog/JENTHF.html

Jensen, M. C., & Meckling, W. H. (1976b). Theory Of The Firm: Managerial Behavior, Agency Costs And Ownership Structure. In Journal of Financial Economics (Vol. 3). Q North-Holland Publishing Company.

Karbhari, Y., Alam, M. K., & Rahman, M. M. (2020). Relevance of the application of institutional theory in Shariah governance of Islamic banks. In PSU Research Review (Vol. 5, Issue 1, pp. 1–15). Emerald Group Holdings Ltd. https://doi.org/10.1108/PRR-05-2020-0015

Khan, I., & Zahid, S. N. (2020a). The impact of Shari’ah and corporate governance on Islamic banks performance: evidence from Asia. International Journal of Islamic and Middle Eastern Finance and Management, 13(3), 483–501. https://doi.org/10.1108/IMEFM-01-2019-0003

Khan, I., & Zahid, S. N. (2020b). The impact of Shari’ah and corporate governance on Islamic banks performance: evidence from Asia. International Journal of Islamic and Middle Eastern Finance and Management, 13(3), 483–501. https://doi.org/10.1108/IMEFM-01-2019-0003

Khandelwal, V., Tripathi, P., Chotia, V., Srivastava, M., Sharma, P., & Kalyani, S. (2023). Examining the Impact of Agency Issues on Corporate Performance: A Bibliometric Analysis. Journal of Risk and Financial Management, 16(12). https://doi.org/10.3390/jrfm16120497

Kiranawati, Y. C., Aziza, S. M., Nasim, A., Ningsih, C., Share, ©, Ekonomi, J., & Islam, K. (n.d.). Islamic Banking Governance_ 59 SHARE |. 12(1), 59–74. https://doi.org/10.22373/share.v12i1.15466

Kismawadi, E. R. (2023). Improving Islamic bank performance through agency cost and dual board governance. Journal of Islamic Accounting and Business Research. https://doi.org/10.1108/JIABR-01-2023-0035

Maghfirah, F., Husna, F., Muammar, M., & Muksalmina, M. (2022). Fiqh Al-Bi’ah: Islamic Environmental Ethics In Business Development Of Seladang Café. Proceedings of Malikussaleh International Conference on Law, Legal Studies and Social Science (MICoLLS), 2, 00022. https://doi.org/10.29103/micolls.v2i.94

Muhammad, R., Azlan Annuar, H., Taufik, M., & Nugraheni, P. (2021). The influence of the SSB’s characteristics toward Sharia compliance of Islamic banks. Cogent Business and Management, 8(1). https://doi.org/10.1080/23311975.2021.1929033

Muhammad, R., Mangawing, M. A., & Salsabilla, S. (2021). The influence of intellectual capital and corporate governance on financial performance of Islamic banks. Jurnal Ekonomi & Keuangan Islam, 7(1), 77–91. https://doi.org/10.20885/JEKI.vol

Mukhibad, H., Nurkhin, A., Anisykurlillah, I., Fachrurrozie, F., & Jayanto, P. Y. (2023). Open innovation in shariah compliance in Islamic banks – Does shariah supervisory board attributes matter? Journal of Open Innovation: Technology, Market, and Complexity, 9(1). https://doi.org/10.1016/j.joitmc.2023.100014

Musleh Alsartawi, A. (2019). Performance of Islamic banks: Do the frequency of Sharīʿah supervisory board meetings and independence matter? ISRA International Journal of Islamic Finance, 11(2), 303–321. https://doi.org/10.1108/IJIF-05-2018-0054

Nomran, N., Haron, R., & Hassan, R. (2016). Shari’ah Supervisory Board Characteristics Effects On Islamic Banks’ Performance: Evidence from Malaysia. AICIF.

Nomran, N. M., & Haron, R. (2020). A systematic literature review on Sharī’ah governance mechanism and firm performance in Islamic banking. Islamic Economic Studies, 27(2), 91–123. https://doi.org/10.1108/ies-06-2019-0013

Nomran, N. M., & Haron, R. (2021). Financial Performance in Islamic Banking and Shari’ah Supervision under Interventionist Regulatory Approach: A System-GMM Dynamic Panel Analysis. Turkish Journal of Islamic Economics, 8(1), 59–86. https://doi.org/10.26414/a095

Prasetyo, H., Indriani, I. K., & Widodo, A. (2020). Comparative study on the application of green accounting based on university social responsibility at Universities in Pontianak. Journal of Islamic Accounting and Finance Research, 2(2), 185–208. https://doi.org/10.21580/jiafr.2020.2.2.6316

Purnamawati, I. G. A. (2018). Green Accounting: A Management Strategy and Corporate Social Responsibility Implementation. International Journal of Community Service Learning. International Journal of Community Service Learning, 2(3), 149–156.

Puspitasari, N., Jururi, S., & Hidayat, S. E. (2023). Effects of Internal Finance, Islamic Governance and Islamic Corporate Responsibility on Profitability: Evidence of Islamic Banking in Indonesia. International Journal of Professional Business Review, 8(5), e02102. https://doi.org/10.26668/businessreview/2023.v8i5.2102

Romadhonia, S., Lestari, S., & Kurniawati, S. L. (2022). The Effect of Islamic Corporate Governance, Sharia Compliance, Islamic Social Responsibility on the Profitability of Sharia Banks. https://doi.org/10.30983/es.v5i2.5566

Rosada, A. (2021). The Effect of Good Corporate Governance Implementation on Islamic Bank Financial Performance Article Information. Management Analysis Journal. http://maj.unnes.ac.id

Sartika, N., Luthfi Iznillah, M., Bathin Alam, J., Alam, S., & Riset Akuntansi Kontemporer, J. (2022). Green Accounting Based On University Social Responsibility: Understanding And Concern In Application. 14(1), 65–74. https://journal.unpas.ac.id/index.php/jrak/index

Shahzad Virk, N., Nawaz, T., & Molyneux, P. (2022). A canary in a Coalmine! religious agency and its impact on the performance of Islamic banks. Journal of International Financial Markets, Institutions and Money, 78. https://doi.org/10.1016/j.intfin.2022.101559

Srairi, S., Bourkhis, K., & Houcine, A. (2022). Does bank governance affect risk and efficiency? Evidence from Islamic banks in GCC countries. International Journal of Islamic and Middle Eastern Finance and Management, 15(3), 644–663. https://doi.org/10.1108/IMEFM-05-2020-0206

Tarmizi, R., Yama Nasaruddin, I., & Hidayah, N. (2023). Analysis of the influence of corporate governance on the financial performance of Islamic banks in Indonesia 2016-2021. APTISI Transactions on Management (ATM), 7(2), 172–183. https://doi.org/10.33050

Tashkandi, A. A. (2022). Shariah supervision and corporate governance effects on Islamic banks’ performance: evidence from the GCC countries. Journal of Business and Socio-Economic Development. https://doi.org/10.1108/jbsed-02-2022-0024

Wahyuddin Abdullah, M., Suwandi, M., Yustika Manrimawagau Bayan, A., & Hanafie, H. (2021). Green Accounting Based Maslahah to Realizing University Social Responsibility in Indonesia.

Wahyuni, W., Meutia, I., & Syamsurijal, S. (2019). The Effect of Green Accounting Implementation on Improving the Environmental Performance of Mining and Energy Companies in Indonesia. Binus Business Review, 10(2), 131–137. https://doi.org/10.21512/bbr.v10i2.5767

Yusuf, M., Sadat UIN Alauddin Makassar Sulawesi Selatan, A., & Majene Sulawesi Barat, S. (n.d.). Eco-Fiqh: Pendekatan Maslahat Terhadap Amdal Dan Konservasi Lingkungan.




DOI: http://dx.doi.org/10.24042/al-mal.v5i2.24745

Refbacks

  • There are currently no refbacks.


 
Creative Commons License
Al-Mal: Jurnal Akuntansi dan Keuangan Islam is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.