The Effect of Islamic Social Reporting Index on Islamic Banking Financial Performance in Indonesia

Abstract

Purpose of this study: This study was conducted to analyze the factors that affect the disclosure of Islamic Social Reporting (ISR) in Islamic Banking on the stock exchange and analyze the data carried out on the annual report of six Islamic banks in 2013-2017. The results of this study are expected to facilitate the Islamic banks to apply the principle of full disclosure with Islam in a more comprehensive way.
 Methodology: The sampling technique used is sampling considerations obtained with a total sample of six Islamic banks in Indonesia. The data analysis technique used is multiple linear regression.
 Main Findings: The level of disclosure of social responsibility reporting in Islamic perspective, using ISR index explains that Islamic Banks having a high index of ISR obtained by Bank Muamalat Indonesia that managed to reach the value of 20 and above, more precisely 32 components of the total index of ISR 48 component in the year 2017. Based on the hypothesis testing, it is found that the F-test of profitability factor and leverage, simultaneously or together influence the factors in the disclosure of ISR in Islamic Banking in Indonesia. Based on the hypothesis testing for the t-test, it is found that profitability and leverage do not affect the disclosure of ISR in Islamic Bank in Indonesia.
 Implication: This research will serve as a reference material for improving the ISR performance of Islamic banking in Indonesia so that there is an even distribution of income.

Islamic (Partner) Accounting and its Comparison with International Financial Accounting Standards (IFRS)

“…Business is regulated by the "Halal-Haram code" (Quran terms where " halal means "lawful"," "acceptable", "permissible", "permitted", and "haram" means "illegal", "forbidden") [18], and compliance with the "adl" (justice) principle [19]. Due to these guidelines, a number of researchers qualify Islamic banking (accounting) as social accounting [20, p. 927], [21]. Islamic accounting, unlike Western accounting, is believed to serve a larger group of stakeholders, since it is associated with the interests of society as a whole, and does not serve the interests of certain groups [22, p. 2].…”

Islamic Social Reporting Disclosure of Sharia Commercial Banks in Indonesia: A Form of Social Responsibility

“…According to the World Business Council on Sustainable Development (WBCSD), corporate social responsibility constitutes corporate commitment to maintain ethics in behavior and contributes to the sustainable economic development (Effendi, 2009;Putri et al, 2019). Elkington (1997) conveys that reporting system discloses corporate social responsibility (CSR) information as the triple bottom line reporting or the report which discloses the information about the corporate social, environmental, and economic performance.…”

“…However, the research did not provide comprehensive analysis about the ISR index, because it focused on its relationship with financial performance. Another previous research from Putri et al, (2019) analyzed factors that affected ISR in six Islamic banks on the stock exchange with 48 index points of ISR. This research concluded that on average from 2013 to 2017, the highest score of ISR index was obtained by Bank Muamalat Indonesia and there was no influence from profitability and leverage to ISR index (Putri et al, 2019).…”

“…Islamic banking industries should be managed by following sharia principle. The main source to analyze and evaluate operational activities and financial performance from Islamic banks comes from the annual report that also consist of CSR activities (Putri et al, 2019). The CSR disclosure and reporting practices have been also implemented by numerous public corporates and financial institutions in Indonesia and other countries, i.e.…”

“…Research on CSR disclosure has been continuously conducted and resulted in various conclusions (Jati et al, 2020;Lidyah et al, 2019;Putri et al, 2019;Wardani & Sari, 2018;Meutia & Febrianti, 2017;Qoyum et al, 2017;Asriati et al, 2016). However, studies examining CSR disclosure using ISR index that focuses on detailed results of content analysis from time to time still remains a paucity of evidence.…”