Rationality of fourth party in legitimacy theory: Shariah governance of Islamic financial institutions

Abstract

Purpose The purpose of this paper is to focus on conceptualizing the origin of legitimacy, the legitimation process and its trustworthiness toward the people, regulators, society and stakeholders. In achieving the purpose of the study, an inclusive research gap concerning the roles of the Shariah Supervisory Board (SSB) as a Shariah regulatory authority or an internal mechanism of Shariah Governance Framework (SGF) in the development and formation of Islamic financial institutions (IFIs) would also be addressed. Design/methodology/approach The paper implements an analytical approach to investigate the legitimation process of SSB, and its presence, significance, as well as credibility to the stakeholders. Findings This study proposes an additional authority of legitimacy, namely, SSB/Shariah regulatory authority, along with regulators, professionals and people. These could be derived from the internal mechanism of Shariah Governance (SG) practices of IFIs. The study also proposes another type of legitimacy (ethical/Shariah legitimacy) that derives from the organizational SG practices through its internal mechanisms. The formation of SSB is mandatory and more significant for the isomorphic identification of IFIs, SG system, legitimacy and broader acceptance to stakeholders. Research limitations/implications The rational argument shows that SSB legitimates the overall functions of IFIs, SG practices, processes and structures. It is more apposite because it has substantial validity, dominance, recognition and acceptability along with three external bodies. Besides, IFIs and their SG do not have the proper value to the general people, society, regulators and other stakeholders without the legitimization of SSB. Thus, theorists and academicians may consider SSB as the fourth party of legitimacy along with three legitimacy providing authorities (regulators, professionals and people). Originality/value The paper focuses on illustrating and extending the border knowledge concerning the legitimacy from SG and how do SSBs legitimize IFIs and enhance their credibility to the general people, government, society and other stakeholders. The paper first clarified the internal legitimacy concerning SGF and contributed to the area of Islamic finance, legitimacy, institutional theory, legitimacy theory and internal legitimacy.

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Independence and effectiveness of Shariah department officers to ensure Shariah compliance: evidence from Islamic banks in Bangladesh

“…A case study research design was applied to examine the independence of Shariah department officers of Islamic banks in Bangladesh. Also, Alam (2021a, b) stated that qualitative research and case study could explore the answer of “what” along with “how” and “why” more broadly and comprehensively. Further, qualitative research can explore more comprehensive and in-depth information regarding the independence of Shariah department officers of Islamic banks in Bangladesh.…”

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An exploratory study that uses textual analysis to examine the financial reporting sentiments during the COVID-19 pandemic

“…The legitimacy theory exhibits how a company tries its best to excel and to fulfil the norms and needs of their business environment and, thereby, to indicate the sense of belonging to the circle of community or business society (Guthrie and Parker, 1990; Suchman, 1995; Deegan, 2006). In accounting studies, the legitimacy theory plays an important role in describing the organizational behaviour when disclosing information (Ogden and Clarke, 2005) and, in some cases, reflects a stable social relationship between the company and the society (Alam, 2021). Accordingly, the company’s management ensures that they provide only sought-after information (Schiopoiu Burlea and Popa, 2013) and, thereby, ensuring their survival (Deegan, 2006; Garcia-Sanchez et al , 2020).…”